As of this writing, BlackRock has not publicly expressed interest in developing or integrating blockchain-based solutions. Though they have stated that, like most other players in the industry, they are “monitoring” advances in the technology. This post is an outsider’s perspective on how large financial institutions could grow their businesses using blockchain technology, without cannibalizing its fee-based industry. There are a lot of cost saving opportunities, and those have been widely written about. This post will, for that reason, skip over those aspects. Essentially, we’ll examine revenue growth, branding opportunities and competitive advantages, not savings.
As the world’s largest asset manager with over $5 trillion under management, BlackRock can expand its marketshare by moving its bookkeeping systems from centralized databases to blockchains. Here’s how:
- KYC. Know Your Customer! It’s a big deal. The idea being that governments typically frown upon cleaning “dirty” money and thus helping nefarious organizations participate in questionable activities. They also don’t like tax avoidance. There are major slaps on the wrists from government onto firms like BlackRock that account for billions of dollars in bank settlements every year. Enter the blockchain. All of a sudden, you can easily track the chain of custody of assets. The next question: How do you verify that the person the blockchain said owned an asset at particular time actually owned it or even is the person they said they were? Answer: A platform like the one we’ve developed called Proof. Just visit that site and learn more (Shameless plug? I think so). Others will emerge and people could use those, too. Deloitte is working very hard on the identity verification process for blockchain tech, a very important area. They “get it”.
- Other Banks. Once you go block you don’t go bock, or as it were. An asset created via a smart contract must then be transferred via a blockchain. BlackRock recording asset ownership and transferring via interconnected blockchains provides for vast opportunity because BlackRock is the originator of some of the assets, in this case. Getting to write many of the rules, which in the case of complicated contracts, could be a very good thing. And it’s all fairplay. There are many fees to be had here, that could never have been imagined before blockchain. That one, I’ll leave to your imagination to sell in as an idea to them.
- The New Trading Network. BlackRock’s Aladdin Trading Platform was a major disruptor on Wall Street when it launched a few years back. It uses a centralized database and connects buyers and sellers of bonds and other securities on one marketplace. It also provides analytics and risk assessment. However, soon competitors will prove chain-of-custody of bonds/other assets via blockchain entries, having no doubts as to the accuracy of that custody. BlackRock playing in this area first among large firms is not only a brand opportunity, but a means to become a validator of custody. Being a “notary” throughout history has driven revenues for trusted services rendered. BlackRocks BlockRock could be awesome. But they certainly shouldn’t name it that.
- Writing the Rules. One of my favorite Wall Street movie quotes comes from Margin Call. “Be first, be smarter, or cheat”. BlackRock can be 1 and 2 here.
In conclusion, BlackRock can be a pioneer and out-Moody the credit agencies by providing new chain-of-custody information and receiving fees throughout the lifespan of assets as they change hands, very good for the bottom line. The alternative move… ignoring and sideline “monitoring” blockchain developments, leaves room for other firms to adopt these sorts of strategies first. That would prevent the fulfilment of Step 4.