EXCLUSIVE: “Lessons from the blockchain frontline” – Nish Kotecha, Finboot in ‘The Paytech Magazine’

Nish Kotecha, Chairman and Co-Founder of Finboot, a blockchain enabler, examines blockchain’s role in the financial sector and what it can learn from other industries

It’s fair to say that blockchain has promised more than it has delivered since the technology began making headlines more than 10 years ago. Given the relentless hype, that’s hardly surprising. It remains an emerging technology, widely discussed and touted, but is yet to change the world in the same way the internet has. However, although we haven’t reached the tipping point, the technology has matured enough to support many business applications and has proved its potential across a variety of industries, from agriculture to health, travel and many more.

The core features of a blockchain – namely decentralisation, immutability, and traceability – make it a particularly attractive technology for banks and financial institutions, where accuracy and trust are essential. Potential use cases include payments, securitisation, smart contracts, loans and credit, and clearance and settlement systems.

But, despite the obvious applications, there has only been piecemeal progress to date. Some are more notable than others. A number of global banks are working with software company R3’s permissioned blockchain Corda, for instance, to provide a discrete number of services. And Ripple, the blockchain-based, cross-border digital payment network with its own cryptocurrency, has ruffled the feathers of incumbent providers with its three-second settlement rate and underlined what a blockchain future might mean for finance. There are fewer sceptics than there were.

In the not-so-distant-past JPMorgan’s CEO Jamie Dimon famously damned Bitcoin as ‘a fraud worse than tulips’ referring to the tulip bulb asset bubble of the 17th century – before the bank itself entered the space with its own JPM Coin and an underlying permissioned distributed ledger for the instant clearing of multi-bank, multi-currency assets. The sound of backtracking footsteps was deafening.So, could banking follow other sectors in embracing what many clearly see to be a progressive technology?

A QUESTION OF TRUST

Finboot is a software-as-a-service enterprise blockchain low-code technology company, launched in London and 2017, which began operations in Wales after securing £2.4million in funding in 2021 – including from the country’s development bank, which is helping to grow a local blockchain technology hub.

Finboot works with a wide variety of industries with complex ecosystems. Its contribution to chemical giant Sabic’s attempt to increase the circularity of its supply chain, reduce emissions, increase efficiency and save money earned it significant praise in the company’s 2022 third-quarter report.

The report said of the project, which included packaging specialist Intraplás: “This is the first of its kind in the industry to trace the product from feedstock production to converter, going further than previous industry applications of blockchain in end-to-end tracing.”

It found the platform delivered reduced costs, time and improved data integration for all the value chain partners.Finboot’s chairman and co-founder Nish Kotecha has a background in financial services and he sees blockchain as essential to building the Web3 ecosystem, because it provides one critical element.

“Trust is the most important thing,” says Kotecha, “and it’s usually administered through intermediaries. So, for example, if you look at oil, gas, energy and similar industrial supply chains, there are a complex set of processes for each one; and at every junction point, someone will be verifying who the sellers and buyers are.

“Blockchain can provide that assurance because it can administer end-to-end traceability, which is exactly what Finboot’s MARCO platform does.” Kotecha says that the platform is building trust for customers in Finboot’s principal industries – energy, chemicals, retail, and aviation – but that the same approach could reduce friction in any business where trust and visibility are vital, including finance. It’s unfortunate, he says, that the crypto use case has distracted from blockchain’s many positive applications and slowed its adoption in the very industry where increased control and transparency are top of the agenda.

“Blockchain and regulation are not mutually exclusive,” he insists. “In fact, blockchain can aid regulation.”

As for the banking industry harbouring conservative attitudes, he says: “I’ve spent many years in financial services and know that once the industry sees that innovative solutions are available out of house, it will start looking externally for help to innovate.

“Indeed, many financial institutions have completed pilots, such as green bonds that are being administered on blockchain. One of my shareholders, who is in financial services, even recently asked: ‘When will we see full payments being made across blockchain?’ My answer to that is: ‘Very soon.’”

Given their systemically important role, financial institutions are perhaps uncertain as to what role they can and should play in the blockchain universe, as well as how best to gain value from the technology. Kotecha’s view, though, is that if they don’t hurry up and get on the blockchain bus, they’ll be left out of the Web3 loop.

“A traceable, end-to-end, secure, immutable database is a core requirement in banking and finance,” he says. “In the same way that it can track oil, gas, liquids and other commodities in the industries we currently support at Finboot, it can also be used to control each part of a financial supply chain.”

“SVB unravelled quickly through a lack of trust. Blockchain can enhance trust, because it gives you provenance, and, with the right permissions, transparency and traceability of what’s happening where”

Education will be fundamental to its adoption, he adds: “As with any new tech, there is a learning curve, and you have to show the return on investment to be confident of investing further and growing the technology. For that, you need platforms like MARCO, which allow organisations to move rapidly from scoping a use case to integrating applications in a matter of weeks. Faster deployment means significantly lower costs, and you can quickly prove the value of any new application.

“Web 3 is predicated on organisations being able to talk directly with their audiences, the blockchain itself taking the place of trusted intermediaries – a role banks have long played in finance.“But banks are realising that it’s better to be part of the blockchain ecosystem,” says Kotecha.

And, in his view, they are also coming around to working with third parties that can support developments, rather than to try to own them.As to the issues of privacy and regulation, which vex many in the industry, he says blockchain could be a very useful ally. By way of illustration, Kotecha explains: “If you need to trust a supply chain, say in relation to new European environmental regulations, you need to prove provenance.

You can’t do that unless you confirm identity, and to do that you need permission. So, the person giving identity says, ‘I’m happy for you to use my identity’, and then it is encrypted and moved to the next part of the process. “That’s what blockchain does. It collects permission and data, simultaneously locking them into the same data block, and then you can move forward.”

Kotecha says this is what regulators are looking for and what consumers will demand, and if you’re not preparing to do it today, you’ll have a big problem in five years’ time, because it will probably be too late.“You need to start using blockchain now,” says Kotecha, “to collect data that will create value tomorrow.”

One of Finboot’s solutions is called MARCO Track and Trace. It gathers and shares data, creating digital product passports and accurate reporting, enabling trusted connections between stakeholders in a supply chain. As well as sharing data with customers and suppliers, businesses can also share data with regulators. And Kotecha says that while you need regulation to administer blockchain in a bank, blockchain also enables banks to comply with regulation.

Together they could even have made the recently shuttered Silicon Valley Bank a more viable proposition.

“SVB unravelled quickly through a lack of trust. Blockchain can enhance trust because it gives you provenance, and, with the right permissions, transparency and traceability of what’s happening where – unlike any other database today.” Some time prior to SVB’s collapse, America’s Harvard Forum on Corporate Governance urged the banking industry to come off the fence on blockchain.

“There is a historic opportunity for the banking industry to modernise dramatically by incorporating both public and private blockchains,” the authors wrote.

“Through a combination of governmental regulation and partnerships between the public and private sectors, the legal uncertainties prevalent in the space can be clarified and the banking industry… can expand its use of blockchain technology to provide more efficient and secure products and services.”

Wherever supply chains are siloed and fractured, wherever data sharing is a challenge, Kotecha believes it has a role. “Every business needs to understand blockchain’s capability. To see it as a core technology that is not going away and is the key to success in the future.”

This article was published in The Paytech Magazine Issue 14, Page 22-23