Profit & Loss:
What is the purpose of the new consortium that R3 has helped to form with the banks?
David Rutter: We
want to build this fabric – which is the open source financial ledger – that is
secure, scalable and meets anti-money laundering (AML) and know your customer (KYC) requirements. In other words, we’re looking
at designing a heavy-duty ledger that meets the rigorous standards of Wall
Street and it’s our belief that the ledgers and solutions that exist in the
market today don’t match those criteria.
In addition to that, we’re constructing a collaborative lab,
and the importance of the lab is that it will help us drill down on the best
use cases for this technology in an intelligent way instead of just throwing
out numerous different potential applications, as has been done by some firms
agreeing on the best use cases become more complicated with so many different
parties involved in the consortium?
DR: Our member
banks have identified a number of use cases, which we have collected and
discussed, and we have a couple of near-term favourites, although we haven’t
made any final decisions.
However, talking about use cases for this technology before
you have the foundation set is like talking about what the windows in your home
are going to look like before you’ve approved the blueprints.
P&L: And what
exactly is R3’s role within the consortium? Do you function as a consultant to
the group? Will you be providing the underlying distributive ledger technology?
DR: We have
clearly assembled some of the brightest minds in the business to help lead,
coordinate and provide recommendations to a group of banks. But the last thing
in the world that I am is a consultant. The idea
is to drive significant commercial value over time by providing cost reductions
to the Street and also revenue potential for the entity itself.
The banks appreciate that a seasoned veteran who’s worked
and has broad relationships across the Street, has experience with both large
firms and start-ups and has a bunch of blockchain experts in his group can
provide a lot of value in terms of recommendations, coordination and the
validation of previous work done. I’m sure that we’ll collaborate more broadly
with other firms on the fabric layer, which is the underlying ledger
P&L: Is it going
to be a challenge to implement shared infrastructure technology across a
consortium of financial institutions each with their own technology and legacy
systems already in place?
DR: There are
open source aspects and technologies that will evolve out of this that others
can build products on top of. My technologists don’t like this analogy, but if
you think of an Apple app store, it powers many people and businesses. Companies
are able to build creative applications that can be adapted by the financial
industry very quickly, and without core layer, t would be difficult to do.
The ultimate integration could of course be quite
challenging, but you have to first prove that this technology can create
efficiencies, which is really what we’re focusing on in the first year.
P&L: So do you
have a set plan with a broad timetable of goals in place then?
DR: The answer is
yes. We do have a plan and have developed some mission statements, but these
will continue to evolve and the focus right now is to get everyone on the boat
and rowing in the same direction.
P&L: With regards
to investing in distributive ledger technology, someone recently said that the
banks “all want to be first to be second”. Are they effectively mutualising the
risk of investment by forming this consortium?
DR: There’s a
good argument to be made that you decrease the risk by getting behind an
industry initiative of this sort. I think that’s fair but I don’t think that’s
the driver for the banks. I think the driver is that most of the best
applications for the distributive ledger technologies rely upon the entire
financial community adapting them.
For one bank to have distributive ledger technology for
issuing securities, with no one else on that distributive ledger, you haven’t
created economies, you’ve created a mess with lots of extra expense. The banks
are under pressure and are striving to create efficiencies and they appreciate
that this technology works best in a collaborative community.
Maybe ten or fifteen years ago competitive pressures might
have been such that there is a different result here, but this group is very
much focused on the best way to accelerate adoption of the new technology.
P&L: You’ve now announced that thirteen banks have joined the consortium. Would you consider adding non-bank firms
to the group?
DR: I think that we’ll continue
expanding. We focused on the banks to start because you must
appreciate how difficult it is to bring a consortium together in the first place.
Given that the banks will ultimately be the customers and
the firms who drive the adoption and pay for the integration with this
technology, it seems logical they are the best place to start.