HSBC, BofAML, and Axis Bank are jumping on the blockchain bandwagon.
From automated trade deals in Singapore to faster cross-border remittances in India, the banking applications of blockchain technology are becoming harder to ignore for Asian banks. Thanks to stronger government support and increased corporate interest in this emerging trend, banks are starting to include blockchain applications in their strategic business plans. But analysts cite significant reservations among banks, with some limiting their investment until these applications mature or show better scaling potential.
In August last year, Bank of America Merrill Lynch, HSBC, and the Infocomm Development Authority of Singapore jointly developed a prototype solution built on blockchain technology that shows potential to automate trade deals and streamline the manual process of import and export documentation related to Letter of Credit transactions.
“For the first time, we can start to see how this technology might be used to solve the real world challenges our customers face” such as quicker and easier ways for businesses to connect with new suppliers and customers, says Vivek Ramachandran, global head of product for HSBC’s trade finance business.
Meanwhile, last January, Axis Bank tied up with distributed financial technology company Ripple to offer faster and cheaper cross-border payments.
“Remittances have been a key strategic area for us,” says V Srinivasan, deputy managing director at Axis Bank, India’s third largest private sector bank. “We are excited with the tie-up and the potential that the use of blockchain technology could deliver in enabling real-time affordable money transfers.”
Just recently, a 47-member consortium of Japanese banks also revealed plans to use blockchain for domestic and international payments.
There appears to be growing acknowledgement of blockchain technology as a key trend that will shape the banking industry’s future. About 80% of executives at ﬁnancial institutions surveyed by Bain & Company believe distributed ledger technology (DLT) will be transformative and will signiﬁcantly impact markets. A similar percentage also expect their organisations to begin using DLT before 2020.
The Monetary Authority of Singapore last March announced the successful conclusion of the proof-of-concept project to conduct domestic inter-bank payments using DLT. There are plans for two spin-off projects and early-stage discussions are underway to use DLT for cross-border payments that settle directly using central bank accounts.
Despite these growing claims about blockchain’s disruptive and revolutionary potential, it should be noted that many executives still question the exact beneﬁts their organisations can get from DLT in the near or medium term, says Thomas Olsen, partner at Bain & Company.
Firms are pressured show near-term results so some banks are focusing on building business cases in selected fields. Roughly a third of the ﬁrms are conducting small, isolated experiments in particular locations or asset classes. Others are hedging their risks by teaming up with technology companies. Around 49% of organisations have collaborated with other ﬁrms, often ﬁnancial technology start-ups, to develop DLT projects, while 32% have joined an industry consortium.
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