Blockchain technology underlying the ‘Bitcoin’ crypto currency has created lot of buzz in the technology landscape compared to any other technology in the past. Perhaps, blockchain is considered to be the biggest disruption post ‘internet’.
The wide applicability and comprehensiveness of the technology coupled with trust, transparency and security makes it a suitable candidate for larger adoption. World over, experiments are taking place to find out the best usage and use case for blockchain across the industry verticals.
In the last year alone, we have seen more than $1 billion being spent by global financial institutions in activities related to blockchain and crypto currencies; we expect the spend to increase going forward across industry. A recent report by World Economic Forum (WEF) says that 80% of banks are predicted to start blockchain projects by 2017 and $1.4 billion has been invested into the technology over the past three years. 90 central banks are looking at the technology. In the Indian context even RBI is optimistic about advantages of using blockchain to prevent cheque frauds. Further, WEF recognizes the value drivers which attract global banks to adopt blockchain. Distributed ledger, or blockchain, brings operational simplification, counterparty risk reduction, clearing & settlement time reduction, liquidity & capital improvement, and fraud minimization.
Fundamentally, the adoption of blockchain across banks requires following building blocks;
- Clearly articulated strategy around what and how to use blockchain
- Clearly articulated use cases across the bank
- Clear understanding of the blockchain technology landscape, scope and potential
- Clearly defined working and operating model of node and network across the participating banks within the network
- Clearly defined governance model
- Online real time capable core banking solution in the back end
Indian banks are in an envious position compared to any other banks globally when it comes to core banking transformation. More than 90% of Indian banks are on real-time online, centralized core banking solution. Regulators in India are way ahead when it comes to their futuristic and forward looking approach to technology adoption. This includes online real time payment systems, connectivity, adoption of ISO 20022 standards and introduction of UPI, usage of Aadhar, mobility to drive JanDhan, and financial inclusion.
Well established and scalable interbank connectivity coupled with online near real time payment infrastructure makes banks in India a perfect candidate to carry out blockchain adoption. With a leading bank like ICICI carrying out the successful PoC with ENBD in UAE, a corridor has been established that can be leveraged by other banks also by mutual consent & agreement. Indian banks can leverage blockchain to introduce automation across trade-finance, remittances, funds transfer, open account transactions, and identity services around KYC, smart contracts, and secure documents space.
There is huge potential for Indian banks to garner the remittances from across the globe through blockchain network. India is recipient of more than $70 billion in remittances annually, the largest globally. Indian banks are perfectly positioned to extend the blockchain usage across all their correspondent banking arrangements worldwide. Indian IT infrastructure is also a big enabler for Indian banks to quickly adopt blockchain technology, whether it is reliable network connectivity across the nation, or more than 900 million mobile subscribers, availability of SMS, USSD and mobile app based financial transaction services landscape.
The Indian banking sector is well and truly poised to become the leader in blockchain adoption, and a role model for all other banks to follow the world over.
This article first appeared in BusinessWorld. You can access the original article here.