Organizations ranging from small start-ups to major global banks and government agencies are already investing in Blockchain technology, is your organization thinking about it? See our point of view on Blockchain, please reach out to me to discuss further (karnan.ariaratnam@ca.pwc.com)

1. Financial Services
Consulting Group
Financial Services Technology Strategy (FSTS)
Thought Starters on
Blockchain for FIs – The Beginning
January 2016
FSTS Thought Starters Series

2. PwC
Blockchain-based applications will create a paradigm shift
among FIs – the industry will shift towards decentralization
2
Thought Context
Current business
models are being
disrupted by
Blockchain
technology
Permissioned
Blockchains enable
the first wave of
innovation in FIs
Modernization of
infrastructure can
save $15-$22bn in
annual costs
Thought Starters on Blockchain for FIs – The Beginning
 Organizations ranging from small start-ups to major global banks
and government agencies are already investing in Blockchain
technology – although industry participants agree that this
technology will disrupt financial services and beyond, there is
currently little consensus as to how it will play out
 Areas of disruption include record keeping, regulatory reporting,
smart contracts, clearing & settlement, and cross-border payments
 A lack of definitive financial compliance rules and
anonymity of permissionless Blockchains have
helped permissioned Blockchains (consortium, fully
private) take the lead in the financial services sector
 Permissioned Blockchains can be more efficient for
testing purposes and building critical mass, quickly
applying modifications to the application while
increasing transaction efficiency and reducing the
cost of operations / necessary resources
 Distributed ledger technology is homogeneous, comparable to the
structure and interoperability of the Internet; this technology could
create new ways of financial / transaction exchange thereby
significantly altering the transaction-processing cost model
 Blockchain technology can collectively cut banks’ infrastructure
costs for cross-border payments, securities trading, and regulatory
compliance by $15-$22bn a year by 20221
NOTES: 1 – According to Santander bank research / forecast

3. PwC
The “mini-consortium” model can help FIs internalize use
cases and more rapidly (and cost effectively) test the market
3
Food for ThoughtThought Starters on Blockchain for FIs – The Beginning
“Mini-consortiums”
will take the lead in
financial services vs.
permissionless and
fully private models
Non-discriminatory
contract execution
and distribution will
result in greater
efficiency and
undisputed evidence
Neutrality of
Blockchain will
power the next
generation of cross-
border money
movement
 Blockchain enables contracts to be enforced and executed
automatically by allowing rules and regulations to be harmonized on
distributed ledgers (eliminating the need for manual intervention /
monitoring while providing better models for dispute resolution); it
can also certify the validity / completion of the contract without the
need for intermediaries
 UBS, Microsoft, and several leading institutions are working with
Ethereum, a Blockchain start-up focused on smart contracts
 Permissioned models provide a hybrid of “low-trust” through public /
permissionless Blockchains and the “single centralized entity” model
of fully private Blockchains (critical for financial services applications
to meet the compliance / regulatory requirements)
 Collaboration helps FIs internalize their use cases & launch solutions
in a cost effective way, however, it is important to keep the group
small to have effective decision making processes, accelerate critical
mass, and maintain strategic perspective and common future vision
 For money movement, Blockchain removes the need for an
intermediary such as a clearing house – transactions can occur
directly between the payee and payor without any intermediary and
the validation of the transaction will be decentralized
 Blockchains have a profound impact on areas where the industry
has not already agreed to a central counterparty for clearing and
settlement – the inherent neutrality of Blockchain can be the driving
force to facilitate more efficient cross-border payments

4. PwC
FIs should be assessing & building their Blockchain roadmaps
as current profit pools will be disrupted and re-distributed
4
Thinking Forward
 Blockchain technology is likely to first disrupt financial
services by making existing processes and systems
more efficient, secure, and inexpensive – as existing
systems become efficient and transparent, new
market entrants will build innovative solutions around
the transaction layer to address specific pain points
faced by large FIs and/or their customers
 Blockchain has the potential to eliminate much of the
market intermediary structure which will disrupt the
current profit pools and redistribute profits among
Blockchain participants; FIs will have to assess
potential implications on their existing business
models, infrastructure, risk tolerance, and regulatory
frameworks to embrace a potential entirely new
competitive market in financial services
 A total of 42 global banks including four Canadian
banks have joined the bank-led consortium R3, which
is transitioning from vision / hypothesis stage to use
case development and execution – such initiatives
will help banks arrive at an optimum permissioned
platform to internalize their use cases and
requirements which may not be achieved with open
protocols like the Bitcoin; FIs should continue to
monitor developments within key Blockchain
consortiums and incorporate those use cases into
their roadmap where applicable
 FIs should be assessing / building long- term
Blockchain roadmaps, prioritizing investments and
projects, and establishing pragmatic criteria for
selecting partners to collaborate with both technically
& strategically – Blockchain is maturing at rapid pace
and we expect FIs to acquire / fund proven startups,
consolidating the industry over the next 1-3 years
 Regulators have begun acknowledging (and even
embracing) the potential of Blockchain as it can
improve compliance efforts and serve as an
immutable record of transactions – the Canadian
Senate Committee on banking, trade, and commerce
has also recently set its sights on cryptocurrency and
Blockchain technology; FIs should participate in and
continue to monitor regulatory developments
 PwC can help – We support Blockchain endeavors
with expertise & offerings for all stages of the journey:
 Educate: Enabled by our DeNovo FinTech
platform and innovation discovery workshops
 Evaluate: Support strategic architecting, rapid
prototyping, business casing, and due diligence
 Evolve / Experiment: Purpose-built services
and methodologies for deploying production
systems, including crypto-security, digital / API /
app dev, PMO, other PoC / rapid dev services
Thought Starters on Blockchain for FIs – The Beginning

5. This content is for general information purposes only and should not be used as a substitute for
consultation with professional advisers.
© 2016 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved.
PwC refers to the Canadian firm, and may sometimes refer to the PwC network. Each member
firm is a separate legal entity. Please see www.pwc.com/structure for further details.
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