HSBC Ditches Paper-Based Model, Implements Native Blockchain for $20 Billion Private Securities Holdings
The securities custody arm of HSBC is migrating its private placements database from paper to its own native blockchain. This move, according to Reuters, will enable HSBC to give its customers across the globe consummate access to their private securities database, November 27, 2019. Nearly $20 billion worth of HSBC securities in the multi-trillion-dollar market will be migrated to the blockchain.
The More the Merrier
HSBC’s decision to move its securities database from paper to a blockchain makes sense for a variety of reasons. It’s quite surprising that the database hasn’t been adequately digitized yet, but their willingness to innovate testaments the competency of their custody wing.
Blockchain for database management has been estimated to narrow costs by a great margin by allowing for the elimination of certain intermediary processes along with the impediments posed by information dissemination. HSBC isn’t clear on the degree of cost savings they could see, as their primary focus is to make it easier for their customers to access information regarding the private placement market.
The need for a distributed database stems from elevated yields within the private market. Ciaran Roddy, head of custody innovation at the bank, believes that these yields are propping up demand for better information symmetry for global investors.
Banks have been trying to find utility for blockchains within their internal stacks and have spent billions of dollars in the process. The potential for reducing cost is driving this spur of innovation, albeit cost savings in the initial stages is highly unlikely.
Blockchains as Data Layers
As of today, most existing blockchains do one or both of the following: enabling data transfer over a shared ledger or building economic incentives onto a distributed ledger to replicate an open monetary system. Developments outside these two use cases are currently slim, but continuously growing.
Central banks are calling for more blockchain integration and development of sovereign digital currencies that use a blockchain as it’s its base layer. The utility of a blockchain is said scenario is limited as a government would inherently mute its permisionless properties and focus on the improvement in data propagation.
Going forward, it wouldn’t be all that surprising if the blockchain narrative moves from facilitating open finance to simply transfering data from one person to another with added ease.