The financial sector was one of the first to adopt this technology, initially as a response to the threat of disintermediation represented by cryptocurrencies. In recent years, technological advancements and a better understanding of the phenomenon have meant that the industry’s focus has increasingly shifted away from public blockchains towards private ones, since the latter are closer to the financial institutions’ requirements. With the introduction of DLT (distributed ledger technology), that is, the technology underlying the blockchain, the financial sector could reduce many of the costly reconciliation processes. The so-called “distributed registers” in fact resolve this problem by permitting the exchange of digital information and values vis-à-vis counterparties, with the guarantee that each of the latter possesses the same information, and that tracking remains unchanged over the course of time. This technology introduced not only the principle of information sharing, but also a new category, the so-called “smart contracts”: these are applications that operate in a distributed logic system, and which on the basis of certain information and conditions, automate the performance of a contract without the need for intermediaries verifying the underlying agreement. This model can provide benefits in terms of both transparency and greater automation, given that the verification and performance of the contract are assigned to a software application.
As mentioned, Intesa Sanpaolo has overseen the blockchain since 2014, and despite not having created a dedicated department for such purpose, it has established an ad hoc team composed of experts from all areas of the Bank, in order to analyse the possible effects and benefits of this technology. More specifically, the team has worked on various aspects including regulations, venture capital investments, new technological platforms, start ups, and the analysis of specific cases of use. Furthermore, the Group attends the major national and international roundtables on regulation, first and foremost those organised by the European Commission and the European Banking Federation.
The Bank’s approach to the blockchain has been of the holistic type, as it were, meaning that the team is committed to understanding the fields of application, and has thus undertaken a full examination both of public blockchains - including cryptocurrencies - and of private blockchains. In regard to the former type, for example, in 2014 a dedicated work stream was launched, to be based on close cooperation between the Bank’s departments and start-ups and research centres, with the aim of understanding the technology’s degree of maturity, and of studying new products and services that the Group could provide in the event of a strong acceleration of public blockchains and cryptocurrencies.
In regard to private blockchains, on the other hand, in 2015 the Group began cooperating with R3, an American company that is among the leading international players with regard to Distributed Ledger Technology, and that has developed a proprietary technology called “Corda”, and leads a group of around 100 financial institutions and an extensive partnership network. In this regard, various experiments have been undertaken, and in 2017 cooperation with R3 led Intesa Sanpaolo, through its corporate venture capital fund Neva Finventures, to acquire shares in the company together with other major international financial institutions.
After an initial phase characterised by a certain enthusiasm, during which the blockchain was considered by many to be a panacea that could cure all the ills of the financial sector, more recently its real potential has been better understood. So at present we are witnessing a gradual technological evolution, the first steps towards a regulatory development and a focus on specific fields of application of the technology in the short term.
As things stand, the costs of adoption of the blockchain remain high, and thus its future development will depend on its degree of diffusion, in that suitable economies of scale need to be made, but which are currently hindered by a series of obstacles such as the regulatory framework, integration in existing systems and processes, and changes to business models.
In this scenario, Intesa Sanpaolo has adopted a strategic position designed to favour an industrial approach to those projects that in the short-medium term may take off at national level at least. The best established projects at present are: Spunta Project, which will permit entries to be made in the mutual accounts of Italian banks (as established by the Executive Committee of the Italian Banking Association - ABI), for which migration towards the new technology is due to commence in 2020; Marco Polo (R3) permitting the Bank’s re-intermediation in Trade Finance processes related to import-export (open account transactions).
The European Commission is giving considerable importance to these issues, and it recognises the strategic importance and enormous potential for development and application of blockchains. Unsurprisingly, last March saw the establishment of the first cross-country association targeting the valorisation of the blockchain at global level, and aiming to facilitate standardisation and interoperability: the association in question is the International Association of Trusted Blockchain Applications (INATBA), of which Intesa Sanpaolo is a founder member.