How blockchain is being used by financial services and banks

Cryptocurrency was invented with the aim of bypassing banks and central regulatory bodies, however, the underlying technology, blockchain, has increasingly become a field of fascination for banks the world over. In fact, the financial services industry spent an estimated $1.7 billion (£1.3 billion) on blockchain or distributed ledger technologies (DLT) in 2017.

Industry experts foresee a range of areas in the banking industry that would be suited for blockchain technology such as proof of identity, trade finance, payments, clearing and settlement and syndicated loans.

While most projects haven't progressed beyond the 'experimentation' phase, there are a growing number of high-profile initiatives gaining attention. Here, we list the most notable and discuss the potential they have to permanently upend the current way of banking.

R3 - the global blockchain consortium

R3 - the global blockchain consortium

R3 is one of the most high-profile examples of banks dabbling in blockchain technology. This global consortium is owned by over 40 of the world's largest lenders and counts over 100 members, including banks like Barclays, Merrill Lynch, Bangkok Bank and BNP Paribas.

The group is working on Corda, an open source blockchain platform, and Corda Enterprise, a blockchain platform optimised for business users.

RBS and the Financial Conduct Authority (FCA) announced a partnership with R3 in September 2017. Using the Corda platform, the initiative will ensure the automation of the creation of mortgage delivery receipts for the bank, and the data is sent to the FCA.

UBS set to launch \'utility settlement coin\'

UBS set to launch 'utility settlement coin'

Swiss bank, UBS has announced intentions to launch a 'utility settlement coin', which will be a new payment system built on top of a blockchain ledger. These tokens will be convertible into cash by central banks. Also involved in the project are Barclays and HSBC, among a number of other global banks.

"We accept that it will be quite a few years before central banks could be in the position of issuing their own digital currencies, so therefore we would look for them to be issued via an alternative means and yet be able to still retain settlement finality because they are assets backed by funds at a central bank," says Lee Braine in the chief technology office of Barclays' investment bank.

The World Bank launches blockchain bond to fund development

The World Bank launches blockchain bond to fund development

The World Bank, working with the Commonwealth Bank of Australia, has announced that it is launching a blockchain bond on Ethereum, with the infrastructure set to run on Microsoft's Azure cloud platform.

The Ethereum blockchain platform was selected due to its huge active community of developers worldwide. Investor interest in the bond has reportedly been strong and proceeds will be directed towards funding sustainable development.

Every year, the World Bank issues $50-$60 billion in bonds to fund global development projects. Because of this, the bank has often been at the forefront of financial innovation, issuing the first electronic bond in 2000.

MasterCard filed patent for blockchain money transfer service

MasterCard filed patent for blockchain money transfer service

MasterCard has filed a patent for a 'blockchain-like' system for faster and more secure real-time payments.

The patent application, named the 'Method And System For Payment Card Verification Via Blockchain' describes MasterCard's intention to deploy distributed ledger technology to develop a 'method and system for instantaneous payment using recorded guarantees'.

MasterCard wrote in the patent filing that it has developed: "A method for processing a guaranteed electronic transaction, includes: storing account profile, each include an account number and balance; receiving a transaction message from an acquiring financial institution via a payment network, the message including a specific account number, transaction amount, and payment guarantee data."

IBM develops blockchain solution to facilitate cross-border payments

IBM develops blockchain solution to facilitate cross-border payments

IBM has developed a banking solution to help financial institutions process cross-border payments using blockchain.

The solution has been developed on the open source Hyperledger Fabric platform, the open source blockchain project founded by the Linux Foundation.

The DLT will be leveraged to reduce the settlement time and lower the cost of processing global payments, while also offering greater transparency for all parties involved.

In a press release, IBM says that this could enable "a farmer in Samoa to enter into a trade contract with a buyer in Indonesia. The blockchain would be used to record the terms of the contract, manage trade documentation, allow the farmer to put up collateral, obtain letters of credit, and finalise transaction terms with immediate payment," using the solution.

Northern Trust automates out manual processes in private equity

Northern Trust automates out manual processes in private equity

Financial services firm Northern Trust announced that it had deployed its first private equity blockchain – geared towards improving transparency for both clients and regulators.

Private equity is still a very laborious class of assets, rife with bureaucracy and the inefficiencies that come with a paper-based system.

Created in partnership with IBM and built on the Hyperledger Fabric, the platform was aimed at tackling these problems.

The most obvious value, Northern Trust’s Peter Cherecwich told Computerworld UK, is in increasing the speed of transaction verifications along with transparency across those transactions.

Synaps Loans is developing a blockchain-based solution for leveraged loans

Synaps Loans is developing a blockchain-based solution for leveraged loans

Leveraged loans are another area of banking plagued by archaic systems, meaning that it can take weeks to clear a loan of this class.

Synaps is aiming to bring a blockchain-based solution to this area, by using algorithms to send information across a distributed network made up of 'nodes' each manned by a participant in the network.

"A lot of the delay in settling trades comes from checking that all parties agree on the same terms," says Joseph Salerno, chief executive officer at Synaps Loans. "With blockchain, they know the position recorded on the ledger is the authoritative version."

Synaps is a joint partnership between tech firm Ipreo and blockchain startup Symbiont, and was tested last year with 19 firms, including Barclays and Wells Fargo & Co.

EY and BNP Paribas partner on private blockchain for global internal treasury ops

EY and BNP Paribas partner on private blockchain for global internal treasury ops

BNP Paribas has successfully partnered with EY on a project applying blockchain technology to its global internal treasury operations.

The bank used a private blockchain to improve operational efficiency by allowing for more flexible real-time transactions between businesses. The blockchain also allows BNP Paribas to have a common view of liquidity positions across its global business units.

BNP Paribas has also expressed interest into leveraging the technology to optimise cross border payments within its transaction banking business.

"Although it is still too early to determine how the technology will evolve and whether it is suitable for large-scale deployment, our pilot has demonstrated the clear strengths of private blockchain and its potential as one of the most effective ways to improve the existing internal processes between different businesses on an international level,” said Xavier Toudoire, head of ALM Treasury IT strategy and architecture at BNP Paribas.

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