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Blockchain and distributed ledger technology move from promise to practice

Blockchain and distributed ledger technology (DLT) have been key disruptors discussed for several years now. But compared with previous years, when many of the discussions were conceptual, at finally there are some more practical, experience-based accounts of the technologies.

JP Morgan, Royal Bank of Canada (RBC) and Australia and New Zealand Banking Group (ANZ), launched the Interbank Information Network (IIN), which uses blockchain for the payments process.

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Blockchain will help the Network to reduce the number of participants currently needed to respond to compliance and other data related inquiries that create delays in the complex world of global payments.

Mark Evans, Managing Director, Transaction Banking at ANZ, said of the pilot: “We are testing a theory of how we can use new technologies to improve old pain points and sources of friction.”

There has been a lot of talk about DLT and blockchain and it is positive to see that the industry is moving from proofs of concept in many areas to proven applications, he added. One of these is the trial of DLT in the reconciliation of nostro databases in real time. ANZ was involved in an earlier project, with Wells Fargo, which was subsequently taken up by SWIFT and applied to its gpi initiative.

What began as a small-scale DLT project was now becoming scaleable across the industry, he observed.

IBM and Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit updated Sibos delegates on the Digital Trade Chain, a shared platform using DLT for domestic and cross-border commerce.

The initiative has been renamed we.trade and Banco Santander has joined the group. The enlarged consortium will continue to develop the platform that can connect the parties involved in a trade transaction: the buyer, buyer’s bank, seller, seller’s bank and logistics/transport company.

The platform will be accessible from any connected device and can be used for managing, tracking and securing domestic and international trade transactions. Commercialisation is expected in Q2 2018. From February 2018 test clients of the founding banks will be able to use the platform.

Also, BNP Paribas ALM Treasury and EY announced they had completed a pilot demonstrating the use of blockchain to improve global internal treasury operations for the bank. The ALM Treasury department, which manages the bank’s internal ops, carried out the pilot, which was tested internally in mid-year. The pilot highlighted how an internal, private blockchain could be used to “improve operational efficiency by providing a more integrated cash management approach between businesses, allowing greater flexibility and a 24×7 capability”.

Emmanuelle Bury, BNP Paribas chief operating officer for ALM Treasury, said: “We launched the initiative ten months ago with a view to address the current constraint on cash transfer capabilities limited to a range of seven to ten hours a day and ways to enhance operational efficiency. It was also important for us to start exploring the blockchain possibilities, in particular given the interest central banks grants to those technologies.”

While the practicalities of blockchain and DLT were in evidence, some of the discussions about the technologies were more circumspect; sunny optimism faced off with hard-nosed pragmatism. Alexis Francis Thomson, Head of Global Securities Services at BBVA, believes blockchain technology may well be able to offer improvements in settlement speeds, but he questions whether the desire for this is really there, pointing out that the industry in Europe has just gone through a painful, long and expensive process of moving to T+2.

The jury may still be out on exactly when blockchain and DLT will become mainstream technologies. For example, following testing with the Bank of Japan, the European Central Bank recently concluded that DLT is not mature enough for large-scale applications such as real-time gross settlement (RTGS) systems. There are political and regulatory hurdles that need to be addressed.

Other bankers observed that until everything is moved over to blockchain, banks will be forced to run parallel systems – a costly exercise.

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