The Impact of Blockchain Technology on the Financial Services Companies

Old ways of doing business have been constantly reshaped by advancement in technology. Just like the rise of the internet, block chain technology has the prospect to disrupt multiple sectors, including commerce. The new development makes processes more transparent, efficient, cheaper and more democratic (Demos 2016, p.6) Block chain’s key component is that it is a shared, public and tamper-proof ledger that allows businesses to trust one another, where all sorts of ways have failed. Basically, it works in a decentralized environment whereby all transactions are listed in a public ledger. This technology offers immutability in transactions and it is characterised by agile and changing techniques that will bring together creative assets and capabilities that drive business growth in the financial sector. The main scope of this project is to identify ways in which Blockchain will transform the industry. This projecte literature

review entails a theoretical framework that evaluates Blockchain technologyBlockchain technology, its impacts, benefits and application[1] in the financial sector. Although the Blockchain technology is in its primary stages of development, it has a high potential of disrupting the financial sector. To understand the current research, the projectpaper[2] maps all relevant works using a systematic study process. The research covers the impacts of block chains on the financial sector and some of the benefits, challenges and applications of this technology. Lastly, the study has comprehensively covers some of the recommendations and future research gaps.

List of Tables and Graphs

Macro and Business Environments, Diagram

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Breakdown of Irish Retail Market, Diagram

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Entrepreneurial Marketing Mix, 7-P’s, Diagram

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European Groceries and Personal Care, Diagram

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Food Miles and Local Food Systems, Diagram

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Research Methodology, Diagram

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Sample of Primary Research Questionnaire

APPENDIX 1

Completed Questionnaires (100), Table

APPENDIX 2

Responses to Question on changes consumers want to make to their food shopping, Table

APPENDIX 3

Responses to Question on Food Items for home delivery among General Respondents, Table

APPENDIX 4

Responses to Question on Food Items for home delivery among Existing Aurivo Customers, Table

APPENDIX 5

Responses to Question on New Service Features among General Respondents, Table

APPENDIX 6

Responses to Question on New Service Features among Existing Aurivo Customers, Table

APPENDIX 7

Summary of all data from Questionnaires, Table

APPENDIX 8

Interview with Selected Respondent, Deirdre Keown

APPENDIX 9

Interview with Selected Respondent, Breid Lindsay

APPENDIX 10

CHAPTER ONE: INTRODUCTION

1.1. Background of the Study

Recent years have seen a heightened wave of disruptive technologies, where emerging platforms continue to challenge banks in the delivery of financial services. The digitalization has created massive opportunities for transformative developments, where the global society is enjoying efficient transfer of data, faster interactions, as well as better analytics (Etwaru and Wang 2017, p.67[3] )) . Despitedespite

the supercomputing capabilities and interconnectedness, the operations of financial firms remain as chunky and cloggy as ever, with key concerns being transparency and trust issues. The banking sector is struggling with not only monetary loss arising from the growing threat of cyberattacks but also keeping personal information safe (Barinov 2016, p.45). The UK has also seen a spate of never-ending accounting scandals, where employees and managers manipulate books of accounts to mislead shareholders as well as exploit the systems.

Virtual workspaces have also failed to address the challenges of working with each other. Against the backdrop of these challenges, Blockchain technologyBlockchain technology is a game changer that will completely transform modern finance and banking sectors. Of all the development to have surfaced in the financial sector recently, Blockchain standsBlockchain stands

out as a revolutionizing advancement and is being seen as the future of the industry. Unlike the disruptive Ffintech’, Blockchain hasBlockchain has the ameliorating power of resolving age-old concerns facing payment systems. According to EtwaruWetware

and Wang, the distributed ledger advances are a promising development in effort to address setbacks facing the digital world (2017, p.45). Moreover, Blockchain presentsBlockchain presents opportunities to rethink cooperation, the flow of wealth, and financial control (BottButt

and Milkau 2016, p.19). The observation is based on the fact that the openness and tamperproof features resolve the trust gaps facing many organizations and would transform the transparency of financial institutions.

The financial sector has thus entered into a new digital age, with the advent of Blockchain redefiningBlockchain redefining the monetary transactions and corporate governance. Recent developments in the Blockchain technologyBlockchain technology confirm the significance of the platform to both the banks and start-ups (Böhme et al. 2015, p.89) For instance; Santander Bank has been using an app based on Blockchain technologyBlockchain technology to facilitate timely global payments. Barclays bank is also developing a smart contract to trade derivatives. Evidently, the block chain technology offers an advanced technological solution to cybersecurity issues. The main achievement lies in the fact that Blockchain cannotBlockchain cannot

be hacked, thus the data stored within is safe from third-parties. It also grants anonymity of transactions, meaning that individuals have an easier time while satisfying their financial needs.

The above advantages became evident as the most popular cryptocurrency, Bitcoin, gained popularity (McKinsey & Co 2016, p.5). The developed advantages were then improved by other popular currencies that utilize Blockchain[4] , for instance, Ethereum that uses so-called smart-contracts that make the transactions even more secure by making them trackable and irreversible, thus excluding even a minute chance of fraud (Heeringa, 2016). If the banking system starts utilizing Blockchain ,Blockchain,

the community’s trust may grow as a result of that (Banking, 2016). Even though the technology has already found its way into various fields, it is yet unclear, how it will impact the financial sector. Thus, the purpose of the present study is to examine potential influences of Blockchain technologyBlockchain technology on the financial industry, and what are the pros and cons of utilizing it.

Problem statement

While the Blockchain platform is a promising blueprint in the financial sector, the benefits ascribed to the technology remains largely anecdotal. Despite the high prospects, real-world impact and benefits are still indistinct to date because of the numerous controversies associated with Blockchain (Blockchain (Marke 2018, P.8). The innovation continues to attract diverging views, the majority being commentaries. While Blockchain wouldBlockchain would

help to close the trust issues that have faced digitalisation of commercial activities at the global level, it will not create safe spaces everywhere as all technologies are a Faustian bargain that has both advantages and disadvantages. However, the current stock of empirical studies has not examined the benefits conclusively, and thus the need for this survey to examine the effect of Blockchain onBlockchain on

the financial sector.

1.2. The justification for the Study

There is a growing enthusiasm surrounding Blockchain technologyBlockchain technology, with commentaries considering it as a development of limitless opportunities. However, the majority of views are anticipations and the development is still in its formative stages. Nevertheless, it continues attracting mega funds, where institutions are dedicating resources to trials and research. Olnes highlights the fervour, noting that the Blockchain technologyBlockchain technology is surrounded by inflated expectations that may be beyond the real world impact (2016, p.9). Olnes explains the craze surrounding the advance, where the majority of businesses are being guided by the wait and see strategy, an approach that seeks to evaluate the genuine value of Blockchain onBlockchain on information and telecommunication facilities (2016, p.10).

While start-up firms are exploiting the technology in their operations and providers offering the Blockchain servicesBlockchain services, no utility has been realised on a widespread scale considering many businesses are still using well-established traditional systems (Böhme, Christin, Edelmanand Edelman, and Moore 2015, p.19). The trend makes this study even more exploratory because there is a need for analysing more cases and documenting lived experience to understand the real world benefits of understanding real-world impacts. The need for this study is therefore significant from an industry perspective but also from financial service customerscustomer’s

perspectives globally.

1.3. Research Questions

• What are some of the current and potential Blockchain utilities in the delivery of financial service and ?

• wWhat are the effects of the technologies on financial services companies,

in addition ?

• owHow

can companies at different points in the financial services [5] value chain best respond to the influence of Blockchain technologiesBlockchain technologies?

1.4. Research Objectives

The main aim of the present study is to critically evaluate the current and potential impacts of Blockchain andBlockchain and crypto-currencies on the financial sector. Thus, the following research objectives can be singled out:

• Examine the present utilization of Blockchain technologiesBlockchain technologies

in the financial sector and main prospects for its future implementation.

• Determine positive and negatives outcomes of Blockchain[6] use by the financial companies.

• Define the main strategies of implementation of Blockchain technology within

theThe

financial sector.

1.9 Significance of the Study

The study will be critical in exploring opportunities in BlockchainBlockchain

as well as challenges facing the financial businesses in their effort to embrace the distributed ledger technologies. While Blockchain technologyBlockchain technology is best known for the cryptocurrency network, many scholars expect the development to revolutionise internet-based transactions and communications. There is a need for exploring the applications, especially uses that touch on payment processing as well as banking (Demos 2016, p.6). Overall, Blockchain hasBlockchain has the potential to revolutionize the way in which transactions are carried out in our everyday lives. More importantly, the study is crucial in explaining applications of Blockchain techBlockchain tech in other areas of the financial industry, other than crypto currencies. Research in the field is also useful because currently, Blockchain t tech is facing a number of technical challenges that can only be solved through proper research (Demos 2016, p.79). The study will also explore some of the challenges faced by the technology. Significance of identifying challenges is to evaluate questions that need to be tackled by various parties such as the government and financial institutions (Ølnes, S., 2016, p.6).

CHAPTER TWO: LITERATURE REVIEW

2. Blockchain Technology

Introduction

Having formulated research questions as well as research objectives, it is worth reviewing relevant scholarly sources to form a basis for future analysis of the issue at hand. During this stage of research, Google Scholar as the major database of scientific materials was utilized. There, the latest and the most relevant sources were found, which were later included in the current literature review. This method of research allowed to investigate Blockchain as modern technological solution, its advantages and prospects. A thorough analysis of relevant sources allowed to define the ways Blockchain can be implemented in the financial industry, and what are the benefits of such application. [7]

What is Blockchain ?Blockchain?

Blockchain has emerged as one of the most revolutionary innovation in recent years. Schematically, it can be described as follows:

Figure 1: Illustration of block chain technology (Chuen 2017, p.45)

According to Chuen, the technology is broadly divided into three: public, private and consortium blockchain (2017, p.48). A public blockchain enables the public to review any transaction, at any given time. On the other hand, private blockchain is owned by organizations or individuals. Consortium removes the sole autonomy and instead, more than one person/organisation is in charge. This upcoming development could transmogrify many business processes.

The distributed ledger technology is seen as a solution to the problem facing back-end banking operations, where the industrial technologies and the paper-based processes continue to have a major toll on quality and cost of services (Bott and Milkau 2016), p.90. The operations management concerns are evident in recent reports, where criminalities, interference, conduct malpractices, incentives, dependence on outsourcing, and human resource issues remain perennial economic risk facing the banking industry (Khushrushahi 2017, p.67). More and more data is being stored in various repositories across the world, and the tech is further advanced by influx of third-party providers and service contractors. There also an increasing the risk of unwarranted infiltration. While the majority of standards are considered effective, they run the gamut from weak to stringent controls. The blockchain is a promising development because it is regarded as a platform for seamless development. The ledger technology allows recording of transactions in an efficient and transparent manner, with the blockchain solutions leaving trackable and verifiable digital prints (Bott and Milkau 2016, p.67). Thus, security of transactions is ensured.

1.1. Benefits of Blockchain Technology in Financial Sector

Blockchain has a number of advantages that can be beneficial for the financial sector. First of all, the utilization of the technology will reduce time, cost, security, and transparency of transactions (Underwood, 2016). The anonymity means that personal data cannot be accessed by third parties, leaving it available only for the participants of a transaction. Consequently, a person can easily prove the ownership of assets, as nobody else can access one’s personal encrypted wallet.

Figure 2: The Benefits of Blockchain Technology (XXXXX)

What else should be born in mind is the fact that blockchain is not limited to cryptocurrencies only. Its methods of encryption, if used properly, can be applied to a big number of spheres within the financial sector. According to de Meijer (2016, p. 220), Blockchain technologyBlockchain technology will not only support digital cash and payments systems, but also it will ensure issuance of shares in decentralised exchanges.

Moreover, it will ensure new forms of communication without interference by third parties. Therefore, the innovation has the potential to considerably change many aspects of the current financial services industry (Marke 2018, p.13).

Despite its numerous advantages of blockchain mentioned earlier, there are still issues that need to be resolved before the innovation replaces current systems within the financial sector, thus becoming available for wide-scale banking and payment systems (Khushrushahi 2017, p.58). There are also risks associated with this technology: they are mainly related to the number of fraud cryptocurrencies. As a result, there exist numerous regulatory challenges that need to be resolved, before this technology becomes legal and can be implemented in the financial sector (Yeoh 2017, p.110).

Many bankers have conceded that financial institutions are ill-equipped to prevent cyberattacks from opportunistic criminals and organised hackers as well as corporate espionage (Centre for the Study of Financial Innovation 2018, p.1). The blockchain technology strengthens development that will not only address weak security links but also reputational risk. Many service industry businesses believe that blockchain will immunize their enterprises against cyber-attacks, considering the platform is incorruptible. The hack-proof notions arise from the concept of hanging, where encrypting records join data blocks and link them in a way that is impossible to disentangle, and this makes the chained information secure (Chuen 2017, p.99). The blockchain technology is also associated with the distribution of responsibilities, where data is stored in an open source ledger. The decentralization reduces the vulnerability of the information because the distributed node structure increases fragmentation that ultimately lowers the probability of successful attacks (Marke 2018, p.78).

Blockchain technology is also the most secure model because it cushions transactional information as well as the system from tampering. It preserves the integrity of data during the conveyance process, an advantage that has become even more pronounced with the recent developments in Blockchain technologyblockchain technology solutions. The platform is an alternative approach to key-based data authentication. The figure below explains how key-based authentication works.

Figure 2: Keyless Signature structure ((Marke 2018, p.21)

The Keyless Signature Structure (uses DSS protocol) stores hashes of original information and verifies copies of data for comparison purposes. Any manipulation is traced on a real-time basis against the copies of original data that exists on multiple nodes in the network. Blockchain technologyBlockchain technology solutions would help in verifying the integrity data shared across different financial organizations and create immutable audit trails for data (Demos 2016, p.78).

Blockchain technologyBlockchain technology is also an ideal development for stopping Denial-of-Service (DDoS) attacks. The distribution of ledgers culminates in a defragmented financial system with no single vulnerable target, and thus complex in compromising the integrity of the holistic system. The transparency in the distributed Domain Name Server also rules out the likelihood of manipulation of information (Marke 2018, p.67). More so, Blockchain technology assures a promising future in dealing with the perennial challenge of accounting scandals, where countries continue to struggle with manipulation of books of account. The Blockchain is transparent and cannot be altered by an administrator or anyone else in or outside of the Blockchain . Blockchain. There is also a public history of all transactions (McKinsey & Co 2016, p.19).

Another futuristic expectation of the Blockchain technology is dealing with the growing challenge of data management. The foundational basis of the platform is to increase the security of the growing list of records (Chuen 2017, p.6). As a fast changing technology, block chain promises to revolutionize the way in which financial transactions are carried out. The tech does not end with crypto currencies. Some of the leading financial institutions have embraced block chain because of its instantaneous benefits.

Benefits to regulators

Regulating agencies will access information that is currently held in a blanket of securities. Blockchain technology offers[8] a fool-proof record and it is capable of registering all transactions without the need for manual input. The tech will also enable regulators to retrieve information stored in content management systems. If a hacker gets into a system, they are able to corrupt data in any way they want (Chuen 2017, p.56). To deal with such cases, the tech will allow regulators to trace the hackers and prosecute them.

1.2. Challenges Facing Blockchain Technology

Blockchain technology has been enhancing transparency, security, and efficiency of the financial marketplace. However, there are serious challenges owing to the major disruptions triggered. Quaranta claims that the innovation will have a serious adverse effect on the third parties (2017, p.38). The future of the Blockchain technologyBlockchain technology lies in the private intermediaries that have permission to use the tech.

Figure 3: The Challenges of Blockchain Technology (XXXXX)

The interbank transactions that are currently being operated in the market place all rely on a third party that is fully trusted to maintain the central ledger. These are termed as the records of authority. The fact that the banks in the current financial situation do not trust each other justifies the need for this third party. These include the stock exchanges, settlement organizations and investment banks. The Blockchain technology has made every bank to maintain its own ledger that is identical and tamperproof. There is no room created for errors or disputes (Quaranta 2017, p.45). Third parties in such a situation used to play a significant role of risk reduction in structures where the parties do not trust each other. On the other hand, block chain technology has provided similar products in the form of ledgers thus eliminating the need for these third parties. Most of the people working in the financial sector will be rendered irrelevant by the Blockchain technology as the labour-intensive operations will no longer be there (Bott and Milkau 2016, p.90).

According to Quaranta, cost of initiation and maintenance will be very high (2017, p.87). Making the technology to work requires expensive hardware and software for its initial launching. Small investments, start-ups and some banks may not meet the costs because of their financial status. Moreover, carrying out transactions using the block chain system may become a burden from some companies in the initial stage. Finance firms that consider the system as a liability may not implement the idea because it decreases the overall returns of the organisation. Literacy requirements are another challenge that may increase the cost of set up. A Blockchain system usually requires high levels of professionalism and expertise. Many firms will require an upgrade of the current labour force in order to adopt the system. Hiring such employees is not only expensive bust cumbersome (Quaranta 2017, p.47). An alternative is to educate the current employees but this may prove even costlier. Scalability is also a big challenge because it is tedious to apply the tech to large scale applications. For example, VISA processes 1667 transactions in a second (Quaranta 2017, p.48). To provide services for the same amount of transactions, it would require 32 terawatt hours of electricity annually (Quaranta 2017, p.49).

Modification of data is another challenge that comes with implementation of Blockchain technology (Quaranta 2017, p.57). The banking sector requires regular modifications for the purpose of storage and for transactional purposes. The procedures for data modification are long because of the numerous clients that are served by institutions. Additionally, the system depends on computers and power. The same problems that faced computers are likely to recur when using the software.

Big financial entities such as Bank of Canada, Central bank of Netherlands and Russia’s central bank have raised a number of concerns. Firstly, leaders from G20 argue that the technology is a long way from maturity (Quaranta 2017, p.89). They claim that there is a need to overcome price stability and scalability challenges before mass adoption of the technology in the banking system. CryptoCryptocurrenciess

face issues such as price stability and regulation. There is also the environmental cost that is caused by implementation of the idea. Blockchain rely on encryption for security to be ensured. For a user to write a chain complex algorithms are required and this consumes huge amounts of energy. Although it is a hugely valuable network, there is need to consider the environmental implications and energy costs that come with its implementation.

Furthermore, its complexity means[9] that users find it hard to appreciate the upsides of the tech. The current banking systems work properly and therefore, people do not see the need to tear down financial services and rebuild it from scratch. Moreover, BTC and other crypto currencies may take several hours to finalize and that means that there is an inherent problem of speed of a transaction. In theory, the Blockchain network can only be sued to store value.

Something I would llikelike

included in this chapter is an overview of how the financial services industry has changed and how it is evolving and the great disruption that blockchain/cyrptocurrenciescryptocurrencies etcetc.

is having on the industry and customers – confusion, lack of stability, no backing by central banks, fluctuation in terms of value, in excess of 1800 cryptocurrencies in existence throughout the world, no baseline value, etcetc. – all causing confusion, mistrust, etcetc. – rocking the basic premise of banking that kind of thing.Chapter

2.3 Research Methodology[10] & Methods

3.1 Introduction

The study will follow a specific research strategy to provide reliable data and research knowledge for adding value into this research. As a helpful instrument is the research onion which gives an overview of the multiple decisions making steps that the can choose and adapt to his topic. Decisions will be made in relation to different approaches, strategies, choices, time horizons and techniques (Saunders, Lewis, Thornwill 2007)

Figure 4: The Research Onion (Source: Saunders et al, 2003)

3.2 Research Design

This type of research consists of different kinds of design methodologies involved in carrying out the project. It deals with the various techniques and procedures by which data is collected and analysed respectively (Easterby-Smith et al, 2008).

Research Approach

This study has taken on an inductive approach to its research as it shows the combination of three variables coming together to induce a new research angle. An inductive approach is more of a flexible approach as it permits constant deviations to the research as the research progresses with time. This need for subjecting the inductive methodology to change is required to better comprehend the situational awareness.

3.1 Research Philosophy

There are two ways of going about planning research philosophy, either by epistemology or ontology (Saunders et al, 2009) Due to time constraints, the most suitable philosophy for this project is the pragmatic approach using mixed methods of research. As the researcher has insights from, and contacts within the electronic payments and technology sectors.

3.2 Data Collection

Data collection techniques consist of researching primary and secondary data options. This research resorts to personalized interviews and a questionnaire as a form of primary data collection (Saunders et al 2009) the target was individuals who were professionals in Bitcoin technology. Moreover, the questionnaires were handed out at a blockchain workshop in London in July 2018.The questionnaire was useful in coming up with important conclusions.

Even though blockchain is something that almost everyone has ever heard of, the surveyed group consisted of professionals that deal with the tech regularly, so that they can assess the potential impact of the innovation on the financial industry. Given the narrow-fielded nature of the topic, the group of respondents embraced 12 people. The participants deal with the technology in their career so they can be regarded as the relevant source of primary data. Also, a blockchain workshop was attended to ensure that relevant specialists are gathered in one place thus resulting in a relatively easy process of data collection. Thus, it could be said that the convenience sampling was utilised for the research. Jackson (2011) argued that surveys and, consequently, questionnaires are the fastest and the cheapest way of data collection. The methods offer a number of advantages, though the disadvantages are also considerable.

First of all, it is worth mentioning that to create a questionnaire that suits the research objectives and study design is quite a challenging task, as the data to be obtained should answer the research questions. The easiest way is, of course, a questionnaire with ‘closed’ questions, meaning that the set of responses is predetermined, and participants should choose among several options proposed by the researcher. The method is extremely useful for general research. Given the specific nature of the present study, closed questions may lack objectivity and the results might be inadequate. On the other hand, it is not worth proposing an open question to a person that lacks awareness in a specific area like blockchain. The sample group, as mentioned earlier, comprised specialists from the relevant field, thus making the choice of data collection tool justified.

The questionnaire itself contained six questions aimed at finding out possible impacts of blockchain technology on the financial sector. Taking into account the fact that some of the questions were open, a considerable amount of time was then spent to assess the acquired results. While designing the questionnaire, it was also ensured that the questions themselves did not imply the desirable answer, thus ensuring its objectivity. The friendly and respectful character of communication was ensured to prevent negative factors from affecting the quality of the given answers.

The obtained results were then systemised into several groups, including ‘agreement’, ‘disagreement’, and ‘hard to answer’. With the help of an MS Excel table, a set of charts were then created, which reflect the outcomes of the conducted survey. The results of the study are presented further in the paper. Even though blockchain is something that almost everyone has ever heard of, the surveyed group consisted of professionals that deal with the tech regularly, so that they can assess the p