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NRI: Consortium Model No Silver Bullet for Blockchain
Pete Rizzo (@pete_rizzo_) | Published on January 13, 2016 at 13:23 GMT

Despite the interest of large financial firms in pursuing consortium models as part of their effort to understand blockchain and distributed ledger tech, a leading Japan-based think tank believes these efforts could fall out of favor should alternative approaches yield more success.

In a new interview with CoinDesk, Kazumitsu Yokokawa, head of the financial services research and technology group at Nomura Research Institute (NRI), indicated that he believes private proof-of-concepts (P0Cs) will be more effective when pursued with the help of firms like his own.

The NRI has to date emerged as one of the most active firms in Asia in investigating the emerging technology, announcing two P0Cs in 2015 with parent firm Nomura Securities and Japan-based online bank SBI Sumishin.

Yokokawa told CoinDesk that, in his opinion, financial firms are eager to test both consortiums and partnerships with professional services firms like NRI, Deloitte and PwC, but that he believes the latter approach will yield faster and more actionable results.

Yokokawa said:

"I think financial firms are going to bet on both individual P0Cs and consortium models. They want to work individually and with groups, but I personally believe that private P0Cs will see quicker results."

As for NRI, the Tokyo-based firm is largely exploring the technology’s use cases in Japan, a region where blockchain industry developments have been few and far between.

NRI, Yokokawa said, sees a strong business case in exploring blockchain technology given the demand by groups like Nomura and SBI. Still, he inferred NRI is looking at these partnerships strategically as it seeks to gather its own expertise in the subject area.

For example, he noted that NRI is working with Nomura to investigate applications in securities, while SBI is focused on banking. Further P0Cs, he said, could be launched around other use cases as they are identified.

"Blockchain could be used for many industries, including retailers and enterprises, and we are interested in exploring these," he said. "The purpose of these PoCs is to come up with practical ways to use blockchain in the future for these industries beyond financial industry."

Fear of missing out

Big financial institutions, in Japan and abroad, he said are interested in exploring the technology as evidenced by their response to news of its pilot programs. However, he notes their conclusions are not yet developed.

This, he argues, has led to the multi-pronged approach where members like Nomura are willing to work with groups like NRI and R3, which has so far attracted more than 40 international banks to its consortium effort.

"The simple questions are 'Why are we using the blockchain?', 'What is the benefit of the blockchain?', 'What is the outcome?'. Those who haven’t studied it don’t understand the reasons, and they want to know what other people are doing," he explained.

As for NRI’s thesis on blockchain tech, Yokokawa said that he believes it’s not clear that some of the more impressive use cases will be validated.

In particular, he questioned the idea that major clearinghouses, which provide clearing and settlement services to large financials, face a threat from the technology.

"Blockchain should be first applied for small-scale thing such as unlisted equities which need a lot of manual operation without systemization," he suggested.

Yokokawa said he believes that the blockchain is today most compelling as an alternative to paper-based processes, and that more complex uses cases are further away than is widely asserted.

Bridging interests

For its part, NRI sees itself as an enabler of exploration in the industry due to its ability to identify "innovative blockchain vendors" and to coordinate between these groups and more established financial organizations.

"Blockchain study requires both innovative technologies and financial knowledge. SBI Sumishin, Dragonfly Fintech and NRI as a team will provide these essential elements of industry knowledge and cutting-edge technology for blockchain PoC," Yokokawa said.

He further noted that NRI has advantages in Japan’s market, as local blockchain startups, he said, largely lack a strong knowledge of the financial industry.

This, he said, is in contrast to the US, where groups often include a mix of tech and business specialists.

"We provide the knowledge of financial industry and make a package service working with the ventures since we know the market," he added. "We coordinate."

For its efforts, NRI has partnered with Dragonfly Fintech for its PoC with SBI, a startup Yokokawa lauded for developing the "first" private blockchain for the Japanese market.

Plan of action

Following the completion of its initial PoCs, Yokokawa said NRI will make its own determinations on how to move forward with blockchain technology, including potentially releasing its technology.

Yokokawa said that NRI employees, including researchers, systems consultants and developers, are all working on blockchain.

For now, however, he’s content with the company being the de-facto leader in its market by virtue of its early work.

“We are the first and only one [working with blockchain] in the securities market in Japan. In the banking industry, we are also early adopters,” he said.

Still, he wouldn’t rule out potentially collaborating with R3, noting that its largest competitor, Mitsubishi UFJ Financial Group, has joined the effort.

He concluded:

"With our close ties and existing relationships with those Japanese financial institutions, we aim to keep creating new value in the marketplace."

Image via Nomura