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Blockchain for Banking – Half yearly roundup

October 11, 2018 - Pramod Krishna Kamath Lead Product Manager, Infosys Finacle

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In the beginning of 2018, we predicted the key developments in banking for the next 12 months. Halfway through the year, let us see how one of those predictions – about Blockchain – has played out so far.

We maintained that Blockchain would be one of the most influential technologies in financial services, and that 2018 would see the beginning of commercial adoption. Based on a research study commissioned with LTP, we predicted that the top use cases would feature cross border payments, digital identity management, clearing & settlement, letter of credit processes and loan syndication.

Industry announcements in the first 6 months confirm that we called it correctly. Here is a sample: Credit Suisse Group and ING Group said they completed a securities transaction worth about US$ 30 million using a software application built on R3’s Corda distributed ledger platform. ING was also involved in another Blockchain transaction where, along with HSBC, it completed a first of its kind commodities trade on behalf of food and agriculture giant, Cargill. Santander has introduced a Blockchain-based same day international money transfer service. Mitsubishi UFJ Financial Group is jointly developing a Blockchain network for payments with Akamai that is capable of 1 million transactions per second, with latency of less than 2 seconds.

Next, we predicted that regulators would not only open up to Blockchain, but even support it actively. And there is no better way to do that than by adopting the technology within their organizations. Today, various government agencies are exploring using Blockchain to build KYC registries. In India, the Government of Karnataka conducted a hackathon for developing Blockchain-based prototypes for various applications. A 2017 study by the Cambridge Centre for Alternative Finance said that 20 percent of Central Banks planned to use Blockchain by 2019; the top two uses were supporting digital currencies issued by them and payments.

Our third prediction was that the success of pilot projects would drive the emergence of new Blockchain ecosystems, even as the established ones started to mature. A great example comes from Infosys itself, where after successfully helping ICICI Bank and Emirates NBD build a Blockchain corridor for international remittances, we used the experience to form India Trade Connect, a network to carry domestic trade finance transactions, along with a consortium of 11 leading banks. This initiative is powered by our productized blockchain solution Finacle Trade Connect. The solution today supports a full breadth of Trade and Supply chain finance products including Letters of Credit, Open Account, Collection Bills, Invoice and Purchase order financing.

So, what do these trends portend for the industry?

Since Blockchain succeeds only when adopted in numbers, banks will have to build a community of users from different functions – business, technology, security etc. – within their organizations as well as work harmoniously with their external ecosystems. Actually, this applies to all Blockchain users, regulators included. Also, there should be focus on putting governance structures in place.

There is an opportunity to elevate existing Blockchain networks with artificial intelligence and machine learning and leverage these technologies to digitize physical documentation, automate processes, improve compliance and security, and inform sophisticated decision making.

These will further the mainstreaming of Blockchain in banking in 2019.

The benefits of the solution for our bank customers include enhanced operational efficiencies by improving cycle times – as much as about 75% for a letter of credit; cost reduction by reducing document courier fees and per transaction cost associated with intermediary managing systems; risk mitigation through blockchain based systems to prevent duplicate financing and for real-time tracking of trade instruments; and new business opportunities with trusted access to documents required to underwrite credit. Infosys is now extending the learnings from India trade connect to form multiple geo specific networks and is working with 4 consortiums globally.

You can read more about the solution here.

References:

Pramod Krishna Kamath

Lead Product Manager, Infosys Finacle

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