Two banking giants have recently offered yet another massive break for the application of blockchain technologies in the financial sector. In a $30.48 million securities lending transaction, ING Groep NV and Credit Suisse Group AG employed blockchain-based software to effect the transaction, the companies said on March 1, 2018.
Hi-Tech and High Speed
This latest record is another example where the formal banking sector appears to be genuinely investigating and applying the core value of secure transactions proffered by the 2009 innovation.
Although supposedly threatened by the phenomenon of cryptocurrencies, a decentralized money system that should theoretically put banks out of business, the fraternity has been enamored with blockchain technology for its application for some time.
HQLAx, a fintech company that developed the app enabling the two firms to transact via securities “baskets,” built a specialized application utilizing a blockchain type pioneered by the R3 development consortium. The transaction is seen as a prime example of a real-world, real-time use of blockchain technology to existing capital markets.
— R3 (@inside_r3) March 1, 2018
The companies released a statement pointing to their success and its implications. Charley Cooper, MD at R3 said that “This was far more than a proof of concept in a fenced lab.”
Cooper pointed to the positive implications of the recent transaction, saying that “These are regulated institutions in a real market and it is a unique demonstration that blockchain solutions are being deployed in commercial settings.”
It appears that a prime motivator for banks all over the world to employ blockchain technology is the desire to cut costs. With blockchain technology eliminating much back office shuffling, fewer people are involved, and authentication of something like a securities swap can be quick, simple and save the banks money.
Many banks have blockchain patents, and almost all world banks above a certain size are looking hard at blockchain to see what value it might bring them. Although mostly still experimental, transactions like that between Credit Suisse and ING are expected to grow and eventually dominate formal banking sector transactions.
Speaking on behalf of ING, Herve Francois, an in-house blockchain developer, said that the companies expect the app to be live and fully integrated by end 2018.
The banks say that utilizing a blockchain platform can make the process of securities lending faster and cheaper. Typically, securities lending involves a funds transfer between accounts, but the recent transaction eliminated the traditional days of waiting for a conclusion and the settlement of the deal was immediate.
Banks on their Blockchain Journey
Credit Suisse’s head of distributed ledger and blockchain strategy, Emmanuel Aidoo, said that “The platform gives us an opportunity to make a balance sheet and capital usage much more efficient and timely.”
The formal banking fraternity has been testing blockchain application for years now, although the hysteria surrounding Bitcoin during 2017 illuminated the arena in new ways.
As much as regulatory control issues have dampened enthusiasm for Bitcoin and others, big banking is widely seen as a persistent and hugely positive contributor to global acceptance of the currencies that ride on the blockchain.
The New York-based consortium R3 represents more than 100 financial institutions. Although JP Morgan exited the consortium with its agenda, R3 has so far developed a blockchain app called Corda. This app was employed as a base construct in the recent securities lending transaction.