Indian IT firms eye technology behind Bitcoin for disruptive value
Bengaluru: Software services providers Tata Consultancy Services Ltd (TCS), Infosys Ltd and Cognizant Technology Solutions Corp. have boosted investment in so-called blockchain technology and started to look at ways to build applications around it.
Blockchain is essentially an electronic system which is currently being used by crypto currencies, including Bitcoin and Ripple, and helps in authenticating transactions.
The move by the information technology (IT) companies comes at a time when banks and other financial firms—their customers—are looking at the use of disruptive technology to cut settlement times and bring down costs tied to international payments.
“It is a game-changer,” said a senior executive at Infosys, which over the past four months has deployed a 20-member team across its Bengaluru and Palo Alto offices to evaluate how it can build applications based on blockchain that can help the firm offer solutions to clients.
Mint first reported on 13 April how Infosys CEO Vishal Sikka’s former colleague at SAP and the current head of Infosys’s core banking product Finacle, Michael Reh, had hired executives to look at this new technology.
While none of the three IT companies has obtained any incremental business by working on blockchain so far, experts said the decision to invest in the technology makes sense.
“The blockchain technology is an important piece in facilitating transparency while delivering anonymity in transactions. This is the basis of most crypto currency models. The financial services industry is undergoing a massive attack from fintech start-ups who are looking to disrupt all aspects of banking. Consequently, legacy and traditional institutions are investing in disruptive technologies themselves to prevent themselves from disruption,” said Ray Wang, founder and CEO of Constellation Research.
“Any service provider in the banking, financial services and insurance space must understand crypto currencies and peer-to-peer models if they intend to provide innovation in the industry. This is why these are essential investments,” he added.
Since blockchain works on a model of code-breaking and crowdsourcing, the technology decentralizes the way a traditional bank works—blockchain itself verifies a person’s identity or credit risk.
Many companies are trying to build applications on top of blockchain to offer solutions across industries. For instance, making an intelligent application over blockchain to store and handle patient data can find use in the healthcare space and would do away with the need for a central authority to manage all the details of a patient.
“Many think blockchain is just limited to Bitcoin. But that is not true. In essence, blockchain can actually disrupt the model of every industry we can think of, even the model of Airbnb (a home-rental site) and Uber (a mobile taxi-hailing application). It eliminates all middlemen and decentralizes business,” said a senior executive at TCS.
Mumbai-based TCS has a team, including Sarang Aravamuthan and four others, working from its Chennai facility to build applications on blockchain. Over the last year, TCS has toyed with multiple blockchain projects, including how the country’s largest IT firm can offer solutions to its clients in the capital markets that allow investors to trade securities among themselves without a central clearing house.
In Pune, Dinkar Gupta, chief architect for global banking and financial service clients at Cognizant, along with his team is looking at solutions on blockchain for improving the payment and settlement system.
To be sure, although TCS and Cognizant have been working on blockchain for a year, Infosys has been the most aggressive over the past four months. The company is adopting a two-pronged approach to make business sense out of blockchain—it is building its own talent pool and is also looking to partner with start-ups focused on blockchain.
Earlier this summer, Infosys’s principal technology architect, Manjunath Chintamani, attended a two-month course in understanding the technology, at Palo Alto-based Blockchain University. Earlier this month, Infosys tied up with Innovate Finance, the UK industry body of financial organizations, in an attempt to partner and even invest in some of the start-ups focused on the technology.
“Obviously, it can revolutionize the banking space. But think of the benefits it can have for, say, music file-sharing or in the healthcare space, where regulating data is a challenge. So we are working where can we best offer solutions to our clients,” said a second executive at Infosys.
Infosys, for now, is also looking at the benefits of blockchain beyond just the financial services space.
“The payments industry is seeing disruption and this is certainly one space of interest,” said an Infosys executive, who is a member of the company’s $500 million innovation fund that invests in start-ups. The executive declined to be named as he is not authorized to interact with reporters.
Indian IT giants’ focus on blockchain and artificial intelligence (AI)-powered platforms—earlier this year, Wipro ushered in AI platform Holmes and TCS showcased Ignio in June—is primarily on account of a slowdown in technology spending by companies across the world. Understandably, as commoditized deals witness pricing pressure, IT vendors are investing in these technologies which, though as standalone product offerings may not bring incremental business, can help “swing a deal” when the vendors vie for large outsourcing deals.
“The blockchain is now being discussed beyond its role in virtual currency,” said Lawrence Wintermeyer, CEO of Innovate Finance. “IBM (International Business Machines Corp.), for example, is testing blockchain for the Internet of Things and RBS (Royal Bank of Scotland) is exploring blockchain use to potentially reduce costs for international payments, and offer different ways of handling international payments. Organizations such as the Gates Foundation are exploring how blockchain can become a financial solution that can reach the unbanked,” added Wintermeyer.
However, for now the focus is on the traditional banking sector. Blockchain technologies could cut banks’ infrastructural costs by up to $20 billion a year by 2022, estimated Santander InnoVentures, a London-based venture capital firm.
For this reason, most global banks have started evaluating blockchain. In April, Swiss banking giant UBS AG opened a technology lab in London to explore how blockchain technology can be used in financial services while earlier this year, a New York Stock Exchange unit of Intercontinental Exchange Inc. made an investment in Coinbase, the Bitcoin-trading platform. Hence, global IT vendors, including Accenture Plc. and IBM and the home-grown outsourcers, have started evaluating the potential of blockchain.
TCS and Infosys declined to comment on this story as they are in a ‘quiet period’ ahead of declaring their first quarter numbers next month. A spokesman for Cognizant declined to comment.
“All this talk of SMAC (social, mobility, analytics and cloud) is okay but actually it is blockchain that can replace the Internet,” said a senior executive at TCS, adding that it is not about “if” but “when” it will happen. “And I think the way technology is being embraced all across us, it won’t be 10 or 20 years.”