As the mortgage industry advances toward digital transformation, it makes sense to identify which technologies will provide the most benefits during the transition and beyond. The distributed ledger technology known as blockchain is a promising solution, but some have been reluctant to embrace it due to technical and regulatory concerns. The political winds are shifting, creating more favorable conditions for advancing and exploring emerging technologies. Here is an overview of the benefits of blockchain and new reasons to give it a fresh look.
The Benefits of Blockchain
If you’re not familiar with how blockchain technology works, you can read about it here. Many industries and top corporations have been using it to enhance their operations for years, but how? And why?
When discussing blockchain, it’s important to distinguish between public and private adoption. Most market barriers to implementation involve the adoption of a large, public blockchain that would store public and private data in the same digital space. We’re not there yet. The majority of current blockchain application is private because regulators have not prevented companies from using it to manage data and improve internal processes. Early adopters are using blockchain because it delivers benefits no other technology has been able to provide, including:
- Transactional integrity – Blockchain uses verified data to create a block – an unchangeable record of every modification to a piece of data from the moment it was created. This process creates new levels of transparency and accountability in digital transactions.
- Security – A block of data must be verified across a large network of computers called nodes. Blockchain’s security process requires all information in a block to match before it can be added to the chain. Once a block is added, it is encrypted. Hacking a blockchain would require hacking every node computer in order to rewrite the blockchain’s history, which would be extremely difficult.
- Speed – Blockchain uses automation technology, including self-executing contracts called smart contracts, to process data and move assets. These processes accelerate turn times and provide instant access to a single, balanced ledger.
- Efficiency – Immutable, secure, real-time data eliminates the need for a third-party intermediary to advance processes or reconcile information. This reduces manual costs and delays.
Blockchain works with other technologies to complete a trifecta of digital solutions being utilized in today’s market. Financial technologies (FinTech) help us do business faster. Artificial Intelligence (AI) helps us do it smarter, and blockchain brings a much-needed sense of security and trust to digital transactions. Together, these technologies have the potential to help lenders:
- Improve the customer experience
- Lower loan origination costs
- Reduce fraud and loss
- Show compliance
- Increase available capital
Technical Advances
Rapid advances in technology are also paving the way for greater blockchain adoption.
The technical processes Blockchain uses to validate data have gotten faster and more energy efficient since it was introduced over a decade ago. Proof-of-work is giving way to proof-of-concept, which requires no computational power. The original Bitcoin network could process about seven transactions per second (TPS). Today, one of the fastest blockchain networks processes about 1,500 TPS. We still have a long way to go before blockchain technology can handle all real estate transactions, but many believe it is possible – and have invested millions of dollars in research and development to see it through.
There has also been a sharp increase in the number of blockchain-related patent applications filed over the past few years. The second largest U.S. bank holds the most patents – 82 as of March 2019 – and other large financial institutions are following suit. Whether banks intend to utilize these technologies remains to be seen, but they know commercial application is coming and want to be prepared. Regardless of who holds the most patents, everyone benefits if these applications can address current limitations in blockchain technology and move it forward.
Regulatory Guidance
In October 2018, the U.S. Securities and Exchange Commission (SEC) announced the launch of its Strategic Hub for Innovation and Financial Technology (FinHub). FinHub is a portal for consumers, industry professionals and FinTech companies to engage directly with the SEC on FinTech-related technologies. Although FinHub was not set up to formally regulate technologies like blockchain, it did introduce a framework for analyzing the application of U.S. federal securities laws to digital assets. FinHub seeks to provide the first measure of regulatory guidance for emerging technologies. It also gives entrepreneurs and developers a “clear path…to seek input and test ideas" with investor and consumer protection in mind.
For more information, tune into FinHub’s public forum on distributed ledger technology and digital assets on May 31, 2019. The forum will be webcast live via the SEC’s website.
Blockchain Needs Humans
Public adoption of blockchain won’t happen overnight. It will take many people many years to digitize historical data, import it into a blockchain and fill in the gaps that technology can’t handle. For example, title insurance underwriters need to update rules that govern smart contracts, title examiners need to connect liens to a property, and escrow officers need to tell smart contracts who to pay and how much. The introduction of blockchain technology gives industry professionals the opportunity to continue learning new skills, and it is also expected to create many new jobs.
Even if blockchain technology completely transforms the title, real estate and mortgage industries one day, we’re still in the people business. Today’s consumers still seek the guidance of skilled professionals when the financial stakes are high. There’s no substitute for human experience, empathy or creativity. Technology might change the way we do business, but it can’t compete with our ability to communicate, collaborate, build relationships or provide personalized service.
This is an exciting time in our industry. Growing support for emerging digital technologies is opening a world of possibilities we can use to help us adapt to our changing environment. At Old Republic Title, we are committed to providing our title agents and customers with tools and support that can help them succeed today and prepare for tomorrow. We are proud to offer digital solutions that add value and deliver a roadmap for digital transformation.
These are the opinions of Eric Lapin and not necessarily reflective of Old Republic Title.
Eric has 25 years of experience in the mortgage industry, which includes origination through servicing, technology, innovation, data and analytics. He is a member of the MISMO Community of Practice for Blockchain Education Committee and a frequent speaker at industry events.
Eric will be moderating a panel about blockchain at the upcoming Mid-Atlantic Regional Conference.