R3: Putting the 'Fin' Back to FinTech

The case focuses on blockchain (and distributed ledger technology or DLT) – a ‘hot’ area of fintech – and on R3 as a fintech consortium that includes some of the world’s largest banks, financial institutions and regulators. R3 started out as a family office in 2014 and evolved into a fintech company focused on the application of distributed ledger technology (DLT). Within three short years it had built a global consortium of 80 members from the financial services industry, including Barclays, J.P. Morgan, Commonwealth Bank of Australia and UBS. The consortium’s efforts resulted in an open-source DLT called Corda, geared towards handling increasingly complex transactions and regulatory oversight. Although Corda was inspired by blockchain, R3 did not view it as a blockchain product. In May 2017, R3’s Series A raised US$107 million in funding to continue the development and implementation of Corda and expand its Lab & Research Center. Barely a year later, speculation arose that R3 was exploring an IPO.

The term “fintech”, coined to describe the use of new technology in the financial services sector, initially applied to the back-end of established consumer and trade financial institutions, has been expanded to any technological innovations in the finance sector, be they related to financial literacy, retail banking or crypto-currencies. The case focuses on blockchain (and DLT) – a ‘hot’ area of fintech – and on R3 as a DLT fintech consortium that included over 80 of the world’s largest banks, financial institutions, and regulators. Blockchain is broadly discussed as a technology with huge innovation potential in all areas of financial services – for fraud detection, pricing, and reducing administrative costs – which could be harnessed by financial institutions facing the prospect of limited growth in mature markets and pressure to reduce costs. However, since its implementation depended on network effects, regulatory conditions, and high costs – the benefits and limitations of the technology were not fully understood or immediately realizable. Most blockchain/DLT platforms had not been designed to meet the needs of the finance and banking industries – hence R3 moved to fill the gap and resolve the inconsistency.