Blockchain technology is hot and Mariano Belinky, managing partner at Santander InnoVentures, the Spanish bank’s strategic VC fund, knows it.
Well-versed with the London FinTech scene and with $100m to play with, Belinky has already made three investments in blockchain companies: Ripple, Digital Asset Holdings – which is headed by former Wall Street executive Blythe Masters – and Elliptic.
“We are very pragmatic and tangible about what we want to do with blockchain and everything revolves around our customers, what they need and how we can help them,” Belinky told Tech City News.
Investing in blockchain
The fund’s current focus, Belinky explained, is on international payments, attributable to the fact Santander is currently present in 27 countries.
“When we were looking at the companies that had a solution that was good enough and had good traction with other banks and regulators, Ripple very quickly became the obvious answer,” he explained.
Although its participation remains undisclosed, Santander InnoVentures is estimated to have poured $4m into Ripple’s $32m funding round in October last year.
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Other areas of interest for Santander’s customers, Belinky said, are long and syndicated lending trading, which incidentally are some of the issues being tackled by Digital Asset Holdings – which raised a staggering $60m earlier this year – in its attempt to bring greater efficiency to the post-trade environment.
“We thought, if someone is going to be able to bring greater efficiency to the market it has to be someone who has a lot of traction within the financial services world and I think Blythe, in that sense, is the perfect person to tackle the challenge,” he added.
With just over 60% of the fund’s initial capital remaining and despite keeping relatively tight-lipped about future investments in the space, Belinky noted the fund is broadening its focus to other verticals in the distributed ledger technology space, such as compliance, smart contracts and identity. It is also remaining active in other core areas like machine learning, alternative lending and wealth management advisory.
“We expect companies to be disruptive, to solve a problem that we think our clients have and to come to us with an idea about how we can help them as well,” he added.
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Banking on the blockchain
Although blockchain technology has now reached buzzword status, this has not always been the case. Historically risk-averse – and perhaps conscious of competition – banks were initially too focused on dismissing bitcoin, rather than concentrating on the potential posed by its supporting decentralised ledger.
In the last year, we have seen banks – including Santander – go from just discussing the technology to actually putting their money where their mouths are and exploring real life use cases within their innovation departments.
As part of distributed ledger startup R3’s consortium, Santander is working with 41 of the world’s top banks to spread the use of blockchain technology across mainstream finance. But, why has blockchain tech caused ripples of excitement across the very industry it was first created to circumvent?
“There are a number of use cases where blockchain technology has been applied or is being applied. I think that most of the potential that we’ve easily identified so far lies on the cost side of the equation: replacing settlement processes across a number of asset classes,” Belinky said.
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Belinky may be right. The FinTech 2.0 Paper, produced by Santander last year, showed blockchain technology could help reduce banks’ infrastructural costs by $15bn- $20bn a year by 2022.
But blockchain is much more than a cost-cutting exercise, or so it seems. The true extent of its potential is a rapidly evolving debate, but the notion of also being able to remove sources of reconciliation in the post-trade environment and remove intermediaries is also a powerful one for banks and other financial institutions.
“We spend a lot of time reconciling things. If we create this decentralised single point, that is cryptographically signed by participants and they are immutable then you could claim that we are going to eliminate a lot of that reconciliation work that we do.
“Most of the opportunity right now is taking out cost in the settlement process. But I think that, slowly, we will find other revenue opportunities,” he added.
The future of blockchain
For any of this to happen, however, blockchain technology needs to achieve mainstream adoption and in so doing replace the legacy systems used by financial services today. So, what exactly is getting in its way?
“I think it has to do with the natural time it takes to adopt a new technology within a financial institution. We have to take it to a point where it’s legally viable, it’s compliant with internal policies and regulations.
There has been a lot of talk about the definition of blockchain technology, with some incumbents often making sure they distinguish between bitcoin’s blockchain and other distributed ledgers. Whereas we once talked about a world of one blockchain – bitcoin’s ledger – we are now living in a reality where multiple ledgers are possible.
There’s a reason for this. Although bitcoin’s blockchain has been up and running for approximately seven years – and the digital currency, some would argue, continues to be the technology’s most-used application – Belinky doesn’t think the network has been sufficiently tested in an enterprise environment.
“Some people will claim it has been tested, but the number of things you have to test when you are custodian of people’s money that go beyond what’s been done in the public space,” he explained, adding: “We need to make sure technology is enterprise-level robust.”
It is for this reason Belinky envisions a world where heavily permissioned private blockchains are being implemented by financial institutions. This is an area, Belinky said, where some of the banks are moving relatively fast.
“I think JP Morgan is moving fast, you see NASDAQ launching things. A couple of the Australian banks are also fairly far ahead. I would say there is good movement, I don’t think we’re moving particularly slowly, let me put it that way,” he added.
It’s clear Belinky is passionate about blockchain technology and believes in its potential. But while he’s keen to invest in more companies in the space, it’s safe to say he’s waiting patiently for the right opportunities to come along.