Financial services groups, mega banks, regional banks and even foreign exchange infrastructure firms are building alliances with large tech firms to explore ways, using blockchain technology, to execute and settle transactions more efficiently. Here in Japan, we saw Ripple team up with over 60 Japanese financial institutions to build a network that could execute and settle transactions within seconds. Others followed.
Now IBM is working with nine financial services companies, including Barclays and Citi, on a project that will use distributive ledger technology (DLT), or blockchain – it is currently in a proof of concept phase. It will apply blockchain to the usual banking processes such as Know-your-customer, sanctions screening, collateral management, derivatives, as well as post-trade processing and market data.
But unlike Bitcoin which is a public blockchain, the DLT being used by these larger banks is private. There are obvious benefits to this private network, one being security, but there is a problem that experts are pointing out. With large consortiums of banks building their own networks, there will be challenges when these networks attempt to execute and settle trades on other platforms. IBM`s LedgerConnect platform is built on a single network and will allow financial institutions to create blockchain applications.
Although wide-scale use of blockchain technology is still being considered across every major industry, banks seem to be leading other industries. Some so-called “banks” are now calling themselves technology companies that provide financial services.