By Stuart R. Levine
Published In, The Credit Union Times
For credit union boards and executives, the greatest risk is not being adequately informed and not taking action, and then becoming overwhelmed by a tsunami of change. Blockchain technology could just be that huge wave on the horizon. For board members and those in or near the C-suite, a level of knowledge about blockchain is needed for forward-thinking strategic conversations.
The press surrounding Bitcoin’s remarkable valuation increase and volatility generally misses the larger story of the transformation potential of blockchain technology. The first assets recorded on a blockchain were digital currencies, and Bitcoin was first of these. But blockchain has the potential for high impact in a number of industries by reducing or eliminating the need for intermediaries that record and secure data, and doing so far more inexpensively. A Deloitte study states that by 2022 financial services industry savings are projected to reach $15–20 billion annually.
Some analysts envision the security, efficiency, and speed of blockchain technology as being as transformative as the internet, with the power to reorder businesses and transform everyday individual transactions. Blockchain frees transactional records from the historical constraint of isolation and the need for verification, much as the internet freed communication and information from centralized control. Think email versus the post office. Moreover, blockchain has the potential to replace the trust-providing function of traditional institutions like credit unions and escrow agents.
Financial institutions, are saddled with layers of inefficient legacy systems, and are actively exploring state of the art blockchain applications to replace them and eliminate inefficiencies. For example, over 100 banks, technology companies, regulators, and others have joined the R3 Consortium to develop a distributed ledger platform to replace aging legacy systems that have difficulty in working in an integrative way across multiple platforms.
Credit unions, however, have mostly followed an independent path from commercial banks. Last year, a number of credit unions and their umbrella organizations made noteworthy advances in pursuing blockchain technology. In August 2017, CU Ledger LLC was announced. This CUSO offers a way to participate in shared-ledger technology. In October, NAFCU announced that it joined Hyper ledger, an open-source blockchain collaboration hosted by the Linux Foundation. These credit union platforms will require permissions to join, and the network of servers employed would be owned by organizations that know and trust each other.
While R3 has attracted more financial industry attention, many expect that credit unions will reach the finish line first due to their cooperative nature, as opposed to the banking sector where control of information is considered a competitive advantage. Success in blockchain adoption will not necessarily depend on who has the best technology, but on who has created the most robust and trusted network. As Rich Meade of CUNA observed regarding CU Ledger, “The two basic concepts are scale and security, and together credit unions represent enough members so that when we get this going we should be able to scale quickly.”
Leaders must educate themselves and their teams about the potential of blockchain. For credit union board members and those in or near the C-suite, this education allows you to participate in forward-thinking strategic conversations. Your organization needs a strategic roadmap for capital investment and technological implementation. Leaders must avoid the risk of having dramatic change on the horizon and not having a plan to traverse the terrain ahead.
Understand what digital skills and capabilities exist within the senior team, and credit union organizations already have a repository of useful and pertinent information. Starting there can help get blockchain conversations on the table. The CEO, must assure that regular conversations occur among board members and senior managers about what’s happening in the field, and where the organization is currently and where it’s going.
Projects that utilize blockchain technology, especially with members and the public, can’t rest exclusively in the hands of technologists. Leaders must assure that the user experience is simple for employees to implement and for members to use in order to drive rapid adoption. The employee role is critical as well. Steering your organization through the uncertainty of such a potentially disruptive technology needs alignment at all levels of the organization.
Reputation is everything and reputation systems built on blockchain technology may serve as an enduring witness of an organization’s behavior and culture. Ledgers that used to be a system of accounting for business will become a record of accountability and trust.