Adopting Blockchain and Distributed Ledger Technology
Integration as an opportunity
The adoption of Blockchain, Distributed Ledger Technologies (DLT - with the acronym being used here to represent both) and the use of cryptocurrencies is more than just a popular trend fuelled by consumers and retail merchants to save costs and increase payment and transaction efficiency. Fintechs, financial firms, central banks, consortia, and market infrastructure organizations are investigating how DLT can be developed to address long-standing processing issues in our industry. Figures vary wildly, with Accenture estimating that $75 million was invested in DLT studies specific to capital markets in 2015 alone. This figure is up from $30 million in 2014, and Accenture predict that the amount is expected to reach $400 million by 2019. Conversely PNC puts venture investment cumulatively at $1.1 billion at the end of Q1 2016.
This surge of interest across the transaction lifecycle and all asset classes has seen the birth hundreds of Fintech start-ups and nearly as many proofs of concept by market participants.
Financial firms therefore face not only the challenge of how to integrate with these new technologies but also to do so without knowing which of the many runners in this particular race, will make it to the finishing line.
The quandary of logical coexistence
As firms consider deploying DLT to satisfy client demand and to participate in market initiatives to drive down cost, many questions arise with one in particular is ever-present
It is highly unlikely that any of the changes will be a “big bang”. The use of DLT will inevitably grow, however, firms will need to see a consolidated view of their traditional activity alongside those instructed or settled via new “rails”. So should firms be enabling all their processing systems to natively interact with both old and new worlds?
Given the lack of clarity on what end solutions will look like, it would be a brave decision to make. In reality, DLT solutions certainly implement new technology and process orchestration and they connect end parties more directly than existing paradigms such as correspondent banking or traditional securities settlement. What they don’t change however is the underlying basic attributes of the payment or other financial transaction. The orchestration may be different and the way of communicating information will utilize different technology but apart from differences in the parties involved and codification of reference data, the payment is still a payment.
Integration as a solution
Implementing an integration layer between processing and operational systems has the potential to help firms embrace the new, whilst minimizing the impact on existing infrastructure. With the correct flexible tools it can also facilitate jumping “horses” mid race and avoid starting from scratch.
Whereas some DLT players will be cryptocurrency-based and others not, what is a common denominator is that the means of interfacing with them is API based, with the API defining the content and structure of the information and what the interaction is between participating firm and DLT. The APIs themselves are very often encapsulated using consistent standard technology such as JSON or REST. Therefore provided the integration layer has the ability to import these API structures, implement the associated orchestration whilst ensuring that the originating/destination systems understands standard message structures such as ISO 20022, ISO 15022, ISO 8583, SWIFT or domestic ACH formats, the exercise becomes one of mapping and intelligent routing. Should a new set of rails need to be added then the routing rules can be changed and new maps implemented.
The adoption of an agile integration architecture enables any firm to actively engage in the sand boxes of major banks, consortia and central clearing mechanisms and also partner with start-up Fintechs without re-engineering of back end systems.
Successful integration of DLT and processing systems with Volante Technologies
Founded in 2001, Volante Technologies is a global leader in the provision of financial data integration. Volante is dedicated to enabling clients to navigate and manage the integration, processing and orchestration of the diverse, complex and constantly growing range of financial message standards and data encountered throughout the lifecycle of any financial transaction.
Volante maintains a growing library of over 330 pre-designed plug-ins and transformations for payment messages that support the global financial industry. Volante assists firms manage the integration, transformation and processing of payment message types, from domestic infrastructures to global standard protocols. By deploying Volante, projects become manageable, off-the-shelf implementations removing the high costs and risks of legacy system upgrades and installations of new applications.
Volante has invested in new solutions for DLT initiatives. As an example, the firm has developed a plug-in to the Ripple Global Settlement Network. The Ripple relationship is a natural extension of Volante’s capabilities to provide faster and lower risk integration to payment networks. This means that any financial organisation with any ‘traditional’ back end systems can integrate with Ripple’s DLT-based system with ease whilst still routing other payments via existing rails such as SWIFT, ACH or Real Time Payments. The experience gained in creating interfaces to DLT based services such as Ripple, coupled with Volante’s in-depth familiarity with developing a wide range of integration solutions make the company a clear choice as a preferred partner in adapting and integrating distributed ledger technologies into existing traditional financial systems and ledgers.
Volante Technologies’ expertise can help firms normalize data across all of its systems. A consolidated view of all holdings and positions across currencies be they fiat and crypto, commodities, capital markets or trade finance, can be developed utilizing Volante’s unique integration methodologies and products.