UBS Group is enthusiastic about blockchain technology and is willing to cooperate deeply with start-ups

When UBS, the world’s second-largest private wealth asset manager, announced the creation of its “Blockchain Innovation Lab” earlier this year, it sent ripples of excitement and fear through the digital currency industry.

It was a watershed moment: one of the world’s wealthiest investment banks was betting its fortunes, and its public image, on blockchain technology.

The narrative around Bitcoin has shifted away from the cryptocurrency’s notoriety for illegal activity and anti-bank sentiment to new territory.

Alex Batlin , former head of UBS’s blockchain innovation lab, told CoinDesk that while financial technologies such as peer-to-peer lending and crowdfunding platforms are still on the rise, blockchain technology is UBS’s biggest threat or opportunity.

Batlin said:

“It’s probably one of the most convergent technologies and businesses out there.”

His task over the next year will be to find a way for the bank's shareholders to profit from these rapid changes.

The question of return on investment

Normally, UBS is able to assess the return on investment (ROI) of a new idea before committing to further exploration. However, because blockchain technology is so new and changing so rapidly, the bank’s usual approach is no longer applicable.

"In this case, to calculate the ROI, you have to spend a lot of money...you need an ROI within an ROI," Batlin said.

For him, it was a chicken and egg problem. The team created by UBS was described by him as a small agile team of developers, business analysts and project managers from Level 39 , Europe’s largest FinTech accelerator.

Batlin said the team spent a lot of time brainstorming in the conference room, coming up with new business models and then testing them.

“The testing we did was different from a proof of concept because we didn’t have a concept, we just said, here’s a hypothesis, let’s figure out if it works,” he said.

Interoperability

As early as March 2014, UBS released a Bitcoin report:

“Technologically, Bitcoin does offer a revolutionary new payment system. Bitcoin has become a cheap form of international money transfer – a market with great potential. In principle, financial institutions and existing anti-money laundering systems (such as banks) can adopt technology similar to Bitcoin to form a secure and convenient means of transferring money between end users…”

Since then, more and more companies and governments have joined the wave of blockchain technology innovation.

Batlin acknowledged that such a system has the potential to remove complexity from the market and reduce the cost of participation. However, as more blockchains compete for market share, he warned that companies may encounter another problem - reduced interoperability.

“If you’re participating in 100 blockchain networks, what you’re doing is constantly switching between complex technologies.”

Compared to multiple closed-source systems, such as MSN and AOL, Batlin sees the real cost savings coming from a common standard, like the Internet, which he describes as:

“This is a multi-asset chain where I can trade securities, derivatives, and cash on the same platform.”

The Call of London

London, UK, is rapidly becoming a hub at the intersection of finance and technology. Last year, the country's FinTech investment accounted for 42% of the European market, and related corporate employees exceeded 135,000, most of whom are in the capital, London.

In addition to its mature FinTech ecosystem, the UK government’s open-minded regulatory attitude towards cryptocurrencies is also very attractive to the Swiss bank’s project.

At Level 39 in Canary Wharf, there is a strong connection between FinTech and government, with the Financial Conduct Authority (FCA) just across the road and the Bank of England a regular visitor.

“People are happy to come here for meetings, not because of UBS, but because of Level 39,” Batlin said.

While some startups and venture capitalists in the ecosystem, including Index’s Ophelia Brown, have lambasted banks for refusing to provide bank accounts to bitcoin startups, Batlin sees it differently.

"We have thousands of clients around the world who rely on us for advice, expertise and opportunities, so we have to be more cautious and it would be irresponsible for us to take risks with them."

Batlin went on to say that some problems might be too expensive for startups to solve.

“A team of 12 can certainly do great things, but there are challenges that require resources to overcome, and companies like UBS can help with that and be valuable partners in this new world,” he said. “I think partnerships between large companies and startups can work very well because both sides can complement each other.”

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