Four Industries Ripe for Blockchain Disruption
November 20, 2017 • Staff writer • Blog Post
Across industries, blockchain is challenging the fundamentals of how businesses operate.
Blockchain has quickly become one of the most buzzworthy trends at the intersection of business and technology, promising to transform every industry - from finance to manufacturing to healthcare. During the first few years of blockchains existence, companies in the financial services sector were the most eager to experiment with the technology and many financial institutions are now quite advanced in their understanding of what the technology can do.
But over the past couple of years, other sectors have started gaining traction. According to Gartner, the industries outside of financial services currently exploring blockchain technology are public sector (including governments and healthcare) and manufacturing. Blockchain will not just affect how you pay for things; it will change the way you vote, consume healthcare, how you travel and touch almost every aspect of your daily life. That may sound hard to believe but think about how fundamentally the internet changed the way we live our lives today and realize that blockchain has the same potential. As exciting as this is, it also poses a significant challenge for companies. Blockchain is challenging the fundamental assumptions of how they engage with customers, how their business models work, who their competition is and what products and service they offer. When was the last time you visited a Blockbuster video store?
Blockchain streamlines processes, removes steps and speeds things up. It replaces complex legacy systems with automation. It removes intermediaries from processes and, for the first time, allows complete strangers to engage in a transaction with the same set of facts and complete trust. How can that be? Well, today, most people would feel comfortable buying a preowned car from a dealer because the dealer will validate the car is in good working order. The dealer is an intermediary establishing trust between two strangers so they can complete a transaction. Now, what if you could check an independent database validating that the owner really owned the car, that the mileage was correct, that they drove it carefully, maintained it well and never had any accidents? And, what if because you're buying it directly from the owner you're getting it cheaper because there is no middleman involved? And, as the seller, what if the payment system was in place so that you could have validation that you've been paid in full before transferring the ownership of the car? This is the future.
If I’m an intermediary in any process, I’d be thinking very hard about how I would stay relevant in a world where users can interface directly and are armed with data they can trust across a complex ecosystems. If I don’t, it won’t be long before I’m replaces by a much cheaper, effective and efficient alternative.
We’ve called on several leaders across HPE to weigh in on the question: What industries are ripest for blockchain disruption?
- Banking and Insurance
Markus Ogurek, Global Financial Services & Insurance Industry
While other industries are beginning to catch on to the benefits of blockchain, financial services continues to be the frontrunner and will be critical to the technology’s evolution. This sector is an ideal testbed for blockchain due to its complexity across access to data, privacy and heavy regulations.
In response, HPE has created a customized Hybrid IT solution for the industry’s unique needs. HPE recently announced that it developed a Mission Critical Distributed Ledger Technology (DLT) solution that enables blockchain to run at enterprise scale on R3 Corda. Financial institutions around the globe process transactions through R3’s Corda system. Traditionally, if the IT infrastructure fails, the transactions that were being processed at the time are lost with no way of recovering them. Failed transactions, which equal lost revenue and unhappy customers, clearly are not an option for banks. HPE’s Mission Critical DLT ensures that any infrastructure failure does not result in lost transactions and that the pending transactions can be saved and processed once the system is running again. Blockchain disruption could be highly transformative to the payments process. It would enable higher security and lower costs for banks to process payments between organizations and their clients and even between banks themselves. In the current reality, there are a lot of intermediaries in the payment processing system, but blockchain would eliminate the need for a lot of them.
There are other obvious areas beyond payments with use cases ripe to be disrupted.
Know your Customer (KYC)
Financial institutions spend up to $500 million per year to keep up with Know your Customer (KYC) and customer due diligence regulations according to a Thomson Reuters Survey. These regulations are intended to help reduce money laundering and terrorism activities by having requirements for businesses to verify and identify their clients. Blockchain technology could provide a digital single source of ID information allowing for the seamless exchange of documents between banks and external agencies. This would likely result in automated account opening, reduced resource and cost, all whilst maintaining the privacy of data that is legally required. The reduction in administrative costs for compliance departments would be significant.
Trade Finance (Supply Chain)
Existing supply chains are complex, slow, distributed and involve many parties across the world. These parties usually don't trust each other, hence the need for trusted third parties mediators such as banks and clearing houses. Automatically executing Smart Contracts on the blockchain to transfer titles of ownership to goods and money removes the need for banks to provide products such as Letters of Credit. This will drastically reduce costs by cutting out the middlemen and their fees. It creates a trusted network of assured authenticity and origin of products supplied.
The digital transformation of the supply chain and trade finance is one of the most exciting opportunities for smart contracts and blockchain.
Insurance (Claims Processing)
Fraudulent claims, manual processes, fragmented data sources and legacy underwriting models are some of the biggest challenges experienced in the insurance sector today all causing inefficiencies, increased cost and low customer satisfaction.
Creating policies as smart contracts stored on the blockchain is an ideal scenario for insurance. It offers complete control, transparency and traceability for each claim and could lead to automatic processing of pay-outs, changes and renewals. Blockchain technology would also improve risk modelling for the sector, break down the existing silos and significantly reduce fraudulent claims by capturing the origin and ownership of assets such as homes, cars, diamonds and paintings.
Blockchain will transform the Financial Services industry - ultimately creating a much more satisfying customer experience for us all.
- Airlines and Digital Twins
Raphael Davison, Worldwide Director for Blockchain
The digital twin is an example of the intersection of blockchain, the intelligent edge, big data, the internet of things and analytics. For the airline industry, if applied correctly, it could keep more airplanes flying, adding hundreds of millions of dollars of additional annual revenue per year; however it's not easy. From a logistics perspective, few businesses are more complex than commercial airlines. Think about scale. At any given time, there are 124,000 commercial jets in the air. Every jet airplane is basically one million parts flying in formation, each with a history of where it was manufactured, data on its performance and extensive maintenance records. Why? Because many of those parts have the potential to keep an airline grounded. On average, a typical airline has 15-20 jets on the ground for unplanned maintenance. Since a typical jet generates $100 million of revenue per year, the ground is not where you want the airplane to be.
To add to the complexity, each time the plane lands, it downloads terabytes of quality review data for that flight. (To put that in perspective, just one terabyte can store roughly 100,000 minutes of music, enough new material for more than two months of listening time.) Simply processing that volume of data is challenging; driving insights from it in real time is next to impossible with traditional technology solutions. Collecting all of that information into one digital thread is extremely powerful, especially when you recognize it's not just the airline that needs to view and trust the data. There's a whole ecosystem of manufacturers, suppliers, airports, maintainers, airlines, lease holders and others who need access.
But by implementing blockchain, this ecosystem can maintain a highly secured digital record, or digital twin, of each tail number. Because each part of each plane is documented, this record can prevent against counterfeit parts and predict maintenance needs, leading to greater efficiency, performance, safety and cost savings. Airlines can share data on the performance of individual parts in real time with suppliers. And due to the highly regulated nature of the industry, blockchain helps airlines simplify the arduous task of maintaining a complete log of parts and maintenance across an entire fleet.
The result is hundreds of millions of dollars of new revenue with over 200 additional planes in the air each year.
Now consider that the average life of a jet is 30 to 50 years and the financial impact predictive maintenance could have over that lifetime. The result is increased revenue, greater safety, efficiency, better customer experience, lower costs, and billions of dollars of savings. At HPE, we think through these types of scenarios with our customers and partners and help them adopt technology like blockchain that can unlock revenue streams for their business.
Mark Schlander, Global Manufacturing Executive
A car, like an airplane, has a life that can be documented digitally using blockchain, from production through various stages of maintenance. One interesting and very surprising use case is related to odometers. Believe it or not, altering odometers in Europe is fairly easy to do. For automakers, this ability to tamper with a car’s record poses a real threat to their brand. Imagine that I purchase an Audi that I believe has been driven 35,000 miles, but the actual mileage is 135,000. Over time, I likely would be surprised and frustrated by the car’s maintenance needs and might blame the car company for what I perceive as poor quality.
But consider a scenario in which I can prove that a car has 135,000 legitimate miles on it; that record would be extremely valuable to me as the buyer and also to Audi because I am able to set the correct value for the car, and their image is protected. Using blockchain, we can create a digital thread that ties together every transaction throughout the life of a car. I can tell you when the alternator was replaced, who replaced it, the date, how much it cost and which tools were used. The ability to create a living, breathing record for the life of a product, whether it be a car or an airplane, is incredibly valuable.
The rich data that comprises these records has an infinite number of purposes. Car manufacturers can mine it for insights on a specific model. Or companies like HPE can use it for improved fleet management. The analytics coming from the 5,000 cars in our fleet can be assessed to detect patterns and understand maintenance issues. Is it a driver issue? A vehicle issue? A regional issue because of bad roads? Blockchain can help answer these types of questions by simplifying and consolidating digital records and delivering actionable insights.
Mark Schlander, Global Manufacturing Executive
I believe blockchain will be the most disruptive technology to impact manufacturing in the next decade. If companies can speed up the flow of information and eliminate intermediaries, the amount of money they can save across their supply chain is phenomenal. And unlike AI and other emerging technologies, blockchain can span the entire business value process, connect to other ecosystem and keep a record that delivers faster and more reliable information.
Blockchain is especially effective in a manufacturing setting due to the complexity of information involved. While there are five basic types of transactions used to trace a corporation's finances, in a manufacturing ledger, the number is endless and there arent yet industry standards. Across all manufacturing sectors, we are currently seeing the convergence of Information Technology (IT) and Operations Technology (OT); in other words, plant floor manufacturing space or distribution center facilities being merged into the IT environments. This convergence is creating vast amounts of data. Companies can take all of the information--machine to human, human to machine and machine to machine-- from these systems and use blockchain to link the information together and create a digital twin. Once this digital record is created, enterprises can look across their entire value chain and get a comprehensive view of their business in real time. They can use it to assess manufacturing facilities' processes and drill down to an individual manufacturing process. How does plant A compare to plant B? How does process A compare to process B? What about machine A to machine B?
There's also the matter of scale. A manufacturer deploying new business-critical technology overnight is no trivial task. Consider the complexity of changing business processes across a manufacturer that has three or four manufacturing centers and 100 distribution centers. Traditionally, it's a monumental, three-to-four-year task. But companies can now use blockchain to make it faster and cheaper, while navigating across multiple ecosystems.
This is only the beginning. Across all industry sectors, there is a huge potential for blockchain to transform the way business is done, from credit card payments to factory machine maintenance. At HPE, we are working with customers to build the right infrastructure for their specific workloads and enabling blockchain deployments to run at enterprise scale. By helping our customers create roadmaps to customized blockchain solutions, we are helping them rethink how their business operates, disrupt the competition and pave the way for future innovation.