Blockchain Use Cases; Banking Industry

Part
01
of six
Part
01

Blockchain Use Cases; Banking Industry

The additional use cases of blockchain technology in the global banking industry include capital markets, investment management, payments and remittances, banking and lending, and insurance claims. Complete details about each use case are presented below.

Capital Markets

  • Blockchain technology assists banks in the area of issuance, sales and trading, clearing and settlement, post-trade services and infrastructure, asset servicing, and custody.
  • The Postal Savings Bank of China (PSBC) has teamed up with IBM to launch a blockchain-based asset custody system. The PSBC notes that it has successfully executed more than 100 real business transactions using blockchain since the system went live in October 2016.
  • The PSBC worked with IBM to use its hyperledger fabric in the creation of the first deployment in China to apply blockchain technology to asset custody in the financial industry.
  • As part of these efforts, the bank worked with IBM to develop an asset custody system built on the hyperledger fabric. Upon completion of a design thinking workshop and joint development work with IBM, the bank embarked on a two-month trial operation; during which it completed over 100 asset custody transactions involving buying and selling bonds.
  • During the trial, the system demonstrated blockchain’s ability to help streamline the traditionally complex credit verification process and manage risk, helping financial institutions operate more securely and efficiently.

Investment Management

  • Blockchain technology in investment management is applied to fund launch, cap table management, agency transfers in asset management, and fund administration.
  • Calastone announced the launch of its distributed market infrastructure (DMI) which uses blockchain to help its 1,800 clients manage transactions for the mutual fund sector.
  • In September 2018, Swedish bank SEB teamed up with NASDAQ to test a fund trading platform created by blockchain technology.

Payments and Remittances

  • As far as payments and remittances in banks are concerned, blockchain technology assists in domestic retail payments, domestic wholesale and securities settlement, cross border payments, tokenized fiat, stablecoins, and cryptocurrency.
  • In payments and remittances, Banco Best (a bank based in Portugal with expertise in banking, asset management, and trading, with financial products and services on a global scale) processes end-to-end fund transactions using blockchain-based infrastructure in conjunction with FundsDLT, a blockchain-based decentralized platform for fund transaction processing.
  • From an operational efficiency standpoint and concerning payments and remittances, blockchain initiatives benefit investors, distributors, and transfer agents greatly.
  • SEBA bank has been developing tokenization solutions that "will help clients to issue and manage financial assets on multiple blockchain protocols and connect them to investors easily and cost-effectively."
  • The bank plans to offer the tokenization of fiat, precious metals, and alternative assets including real estate, commodities, and art. It will also help companies with security token offerings.

Banking and Lending

  • With regard to banking and lending, blockchain technology is applied in credit prediction and scoring, loan syndication, underwriting and disbursement, and asset collateralization.
  • Banks will profile corporate credit risk blending financial indicators with supply chain performance metrics. This point represents the hinge that will connect the corporate supply chain process data with innovative credit risk models for banks. Banks will capture and analyze events in the physical supply chain to generate a more profound and realistic representation of a company’s risk profile.
  • A clear example comes from the concept of a Bank of Amazon that could offer online financial services.
  • Spain’s BBVA and two partner banks have completed the first syndicated loan using blockchain, providing a working example of how transactions in the $4.6 trillion per year market can be simplified and made faster using technology that underpins cryptocurrencies.
  • In 2018, BBVA used a private blockchain network to arrange a $150 million syndicated loan for Red Electrica, the Spanish grid operator, with co-lenders MUFG of Japan and BNP Paribas of France. Legal advisers, Linklaters and Herbert Smith Freehills, also had access to the system which allowed all parties to exchange information instantly.
  • Syndicated loans were identified early on as a key use for blockchain in financial services since banks rely on outdated and inefficient processes including faxes to share information between different parties who are structuring complex agreements.
  • The German group Dürr raised a €750 million ($840 million) syndicated loan using a blockchain platform developed in-house. The coordinating banks were BNP Paribas, Commerzbank, Deutsche Bank, and UniCredit. The company said the debt was raised with attractive terms. It features an interest rate linked to the company’s sustainability rating provided by the EcoVadis agency.

Insurance

  • For the banks offering insurance, blockchain technology helps in claims processing and disbursement, parametrized contracts and reinsurance markets.
  • Blockchain’s ability to provide complete accountability, transparency, and superior security will help insurers save time and money, as well as improve customer satisfaction.
  • Through its use of public ledger, blockchain can potentially eliminate suspicious and duplicate transactions by logging each transaction. Through its decentralized digital repository, it can verify the authenticity of customers, policies, and transactions by providing historical records. This makes it more difficult for hackers to corrupt and steal files.
  • Blockchain does provide foundational technology that promotes trust, transparency, and stability. Blockchain is in the early stages of adoption, but there are already a handful of ways that insurers are leveraging the technology to mitigate the challenges of security, big data, third-party transactions, smart contracts, and reinsurance.
  • Blockchain can handle the increase in third-party transactions and claims made through personal digital devices; it also helps reduce administrative costs through automated verification of claims/payment data from third parties. Now, insurance companies can quickly view past claims transactions registered on blockchain for easy reference. This promotes higher degrees of trust and loyalty between the insurer and the customer.
  • The Bank of China used blockchain to streamline insurance claims. The new Bank of China platform aims to increase transparency and efficiency across the nation’s insurance industry.

Part
02
of six
Part
02

Blockchain Technology; Cross-Border Transactions Use Case

Banks are partnering with consortiums like Ripple, Everex and Marco Polo Network to facilitate their cross-border transactions. Banks like Shwe Rural & Urban Development Bank, Krungthai Bank, Alfa Bank, Commerzbank and Cargills Bank currently use various blockchain technologies to facilitate cross border transactions.

Blockchain Technology in Cross Border Transactions and Payment

  • Banks are testing the use of blockchain in cross border transactions. In 2017, as part of its "global payments innovation initiative" aimed at setting new standards in cross-border payments, SWIFT opened a Proof of Concept (PoC) to help banks who found it difficult to monitor and manage their international nostro accounts. Twenty-two banks keyed into this in July 2017.
  • Banks are introducing technologies that enable them to use blockchain in cross border transactions. Banks like J.P. Morgan (JPM) launched blockchain-based Interbank Information Network (IIN) which uses blockchain to minimize friction in the global payments structure by ensuing more secure and faster payments in fewer steps.
  • Most banks that have embraced the technology use consortiums like Ripple to offer its customers the use of digital asset XRP to instantly process payments reliably and at lower cost anywhere in the world.
  • In May 2019, the first cross border payments using blockchain technology between two central banks was done.
  • The Central Bank of Canada and its Singapore counterpart, successfully completed the trial of using blockchain technology for cross-border payments.
  • Jasper and Ubin the blockchain projects for Bank of Canada and Monetary Authority of Singapore linked their blockchain networks (R3’s Corda and JP Morgan’s Quorum respectively) together using a unique technology called hashed time-locked contracts (HTLC) to show that "direct Payment versus Payment (PvP) settlement was possible without the use of an intermediary."
  • The payment was done using central bank digital currencies.
  • Bank of Canada and Monetary Authority of Singapore jointly released a report stating that fragmented world, with differing standards, norms, and various regulations has been the key challenge in the present cross-border payments. DLT (distributed ledger technology) could offer an easier and faster path than a centralized approach because "it can leave the different jurisdictions involved in control of their portion of the network while allowing for tight integration with the rest of the network.
  • Many banks joined RippleNet (a blockchain technology) to process cross-border payments in real-time with end-to-end tracking and certainty.
  • RippleNet provides a diverse network of over 300 financial institutions worldwide which makes it easier, faster, and provides lower-cost payments around the world.
  • Another example of blockchain technology used by banks is R3's Corda Marco Polo network, a blockchain technology which provides an open enterprise software platform for trade and working capital finance to banks.

Banks That Use Blockchain Technology and How They Use It

Axis Bank

  • Axis Bank which is reportedly India’s third-largest private sector bank is implementing instant international payment services by using Ripple’s blockchain technology solution. The bank incorporated this service mostly for its retail customers in India in order to enable them to receive payments from RakBank in UAE.
  • Additionally, the service was extended to the bank's corporate customers in India to receive payments from Standard Chartered Bank in Singapore.
  • According to Axis Bank, Ripple makes international remittances faster and more transparent for customers and also ensures security and improves efficiencies as transactions reach their destination account within minutes, with assurances of settlement, and with transparency throughout the payment.
  • President of Transaction Banking at Axis Bank stated that "the bank is excited with the potential that the technology has brought in innovative services to the market and has helped the bank enhance value to our customers."

Cargills Bank

  • Cargills Bank also uses RippleNet to facilitate cross-border inward remittances to Sri Lanka. It uses xCurrent (Ripple’s blockchain based enterprise software solution) to enable safe and secure cross-border transactions.
  • Cargills Bank will maintain its existing method of payment settlement by remittance agents to Cargills Bank.
  • Cargills Bank sees reason for remittance agencies and banks to also join Ripple and link with them to leverage a country-wide payout network with the aid of Ripples.
  • According to a statement by the Chief Operating Officer of Cargills Bank, Rohan Muttiah, Joining RippleNet allows remittance agents and banks to leap frog sources of friction and complexity in inward remittances." He also said that the service will offer beneficiaries access to their funds through Cargills Food City supermarkets.
  • Cargills Bank, through its partnership with Ripples is taking banking to the masses by being inclusive and accessible.

Alfa Bank

  • Alfa Bank implemented a pilot project of cross-border payments via the Marco Polo international trade finance network. This aims at building a digital trade finance and supply chain finance solution on a blockchain platform.
  • Marco Polo Network offers to members a set of Application Programming Interfaces (APIs) for straightforward interaction with ERP systems. This allows international trade beneficiaries to "make payments, create irrevocable payment obligations and also discount accounts receivable within a single transparent system with partners."
  • According to Dina Merkulova, Alfa Bank's Head of Trade Finance, "Alfa Bank launched its first distributed ledger technology in trade finance in 2017 which has seen blockchain solutions considerably elaborated, and also earned the banks clients’ confidence." He also stated that Marco Polo provides an added value for clients by "ensuring more international trade transparency which is achieved by integrated bank payment, finance and discount instruments."
  • The Marco Polo network allows Alfa-Bank to offer its clients a "selectable range of international trade finance solutions and seamless integration into the global trade ecosystem" even though the banking instruments are not integrated into clients’ business processes.

Other Examples of Banks That Use Blockchain Technology

Pros of Blockchain Technology in Cross Border Transactions

Cons of Blockchain Technology in Cross Border Transactions

Part
03
of six
Part
03

Blockchain Technology; Compliance and Security Mandates Use Case

The banking sector is one of the most vulnerable in terms of security, requiring a high level of security infrastructure in place to prevent this. Blockchain technology is a ledger-like platform that allows multiple parties from different geographical locations to have simultaneous access to a constantly updated digital ledger that cannot be altered. Features such as decentralization, immutability, and transparency make it appealing to various stakeholders and businesses. Our research focuses mainly on how banks are using this technology to meet compliance and security mandates.

Blockchain Technology in Banking

Examples of Banks Using Blockchain Technology.

1. JP Morgan Chase

2. Bank of America

3. Rabobank

Pros and Cons

Pros

Cons

Research Strategy

To carry out our research effectively, the team began by analyzing information on blockchain technology from Fintech magazines and finance magazines. We were able to gather information on how banks are using blockchain technology to meet security and compliance mandates.
Additional research from investment magazines and blockchain news outlets such as CoinDesk and Forbes provided us with information on various banks that have adopted blockchain technology and how they implement it to accomplish their security mandates. More information on these was gathered from the various banks' websites.
The team gathered the pros and cons of the technology's implementation in banking from Fintech and investment magazines.


Part
04
of six
Part
04

Blockchain Technology; Trade Financing

Banks around the world are partnering with major blockchain consortiums such as Marco Polo, we.trade, Voltron, Batavia, and HKTFP in order to implement blockchain technology to streamline the process of live trade finance transactions. Below are details on how banks are using blockchain technology, how it is implemented, the pros and cons of using this technology, and some examples of banks using blockchain technology for this purpose.

How Banks are Using Blockchain Technology

  • Upon purchase, the agreement of sale between the importer and exporter is shared with import bank using a Smart Contract on the Blockchain.
  • In real-time, the import bank will have the capability to review the purchase agreement, draft terms of credit, and submit an obligation to pay to the export bank.
  • The export bank will then review the provided payment obligation and upon its approval, a Smart Contract will be generated on the blockchain to cover the terms and conditions along with lock-in obligations.
  • After reviewing the obligations, the exporter will digitally sign the blockchain-equivalent letter of credit within the smart contract to initiate shipment.
  • Goods will be inspected by third parties and the customs agent in the exporting country, with all providing their respective digital signature of approval on the blockchain smart contract.
  • During transit, goods will be transported from country A to country B.
  • Upon delivery, the importer will digitally acknowledge receipt of goods and trigger payment.
  • Using provided acknowledgment, blockchain will automate payment from importer to exporter via a Smart Contract.

How Banks are Implementing the Technology

  • Banks around the world are partnering with major blockchain consortiums such as Marco Polo, we.trade, Voltron, Batavia, and HKTFP in order to implement blockchain technology to streamline the process of live trade finance transactions.

Pros of Using the Technology

Cons of Using the Technology

  • The use of blockchain technology to streamline the process of live trade finance transactions requires all the trading partners to use the same ledger.
  • Even if a single party does not make use of the same platform, the whole procedure has to be done in the traditional way for the party to receive trade transaction information.

Examples of Banks That are Using Blockchain Technology

Part
05
of six
Part
05

Blockchain Technology; Know your customer (KYC)  Use Case

Four examples of banks that are using blockchain technology to improve the Know Your Customer (KYC) process are Deutsche Bank, HSBC, OCBC Bank, and Central Bank of Bahrain.

How banks are implementing the technology

  • On a broader level, distribution book technology (DLT) and the blockchain architecture allows banks to collect information from various service providers into a single cryptographically secure and unchanging database that does not need a third party to verify the authenticity of the information.
  • The way in which the identity confirmation algorithm is used in banks for blockchain-based KYC is as follows:
-- First, a user submits documents for a KYC procedure to one of the banks to take a loan or use another service.
-- After verifying that everything is normal, the bank confirms the passage of KYC.
-- Once the passage is confirmed, data is entered into the blockchain platform, to which other banks, organizations, and state structures have access.
-- Whenever the user wants to use the services of another bank, the second bank can access the system and confirm the user's identity.
  • In this process the other organizations (apart from the primary bank that has confirmed the passage into blockchain) also get to know that the customer’s ID documents have been independently checked, thus eliminating the need to carry out their own KYC checks and reducing their administrative burdens and costs.

Pros of using the technology for improving the KYC process

  • The immutability and transparency of blockchain provides a streamlined way for financial institutions to gain swift and secure access to clean and up-to-date customer data, which allows for a greater operational efficiency, increased trust between institutions, and a reduction of labor-intensive data gathering, reducing time and cost.
  • For regulators, the use of blockchain helps in improving the KYC process as it provides a single source of customer data for better understanding and visibility of customer activity across financial institutions.
  • From a consumer's point of view, an institution's use of a blockchain-enabled KYC utility could reduce onboarding wait times and eliminate the need to repeatedly provide the same information to their financial service providers.
  • Moreover, updates to personal information could be done in the blockchain across all accounts by using digital signatures, eliminating the need to update each institution's database.
  • In terms of improving operational efficiency, the decentralized nature of the distributed ledger technology removes the risks associated with having single, central points of failure, thereby protecting data from hacks and other cyber attacks.

Cons of using the technology for improving the KYC process:

  • As there is no one global standard, KYC practices vary by institution, resulting in redundant work, which limits the ability of different financial institutions to collaborate in the verification of the customer's identity.
  • Also, customers are subject to time-consuming and difficult-to-accomplish onboarding processes when opening new accounts.
  • The frequently changing regulations create costly and effort-intensive obligations for companies to comply.
  • Material changes in customer information are often not being updated promptly by the current system, which results in inaccuracy during transactions and other banking operations.
  • As the application of the technology is still nascent, there are a number of dependencies required to make a blockchain-enabled KYC utility.

Examples of banks that are using blockchain technology to improve the KYC process:

  • IBM has successfully completed the Phase I proof-of-concept of its shared corporate Know Your Customer (KYC) project with two banks, Deutsche Bank and HSBC.
  • Through this shared KYC POC, IBM has successfully demonstrated how the blockchain-based platform provides a secure, decentralized, and efficient mechanism for these banks to collect, validate, store, share, and refresh trusted KYC information of corporate customers.
  • These banks will be able to use such a platform to enhance the customer experience, automate mandatory processes and eliminate duplication through harmonizing and sharing KYC information, resulting in operational savings and, over time, reduced operational risk.
  • OCBC Bank is another bank that is part of the “first consortium” in South East Asia to complete a proof-of-concept for a Know Your Customer (KYC) blockchain platform.
  • The KYC blockchain runs on a distributed ledger technology (DLT) platform that enables structured information to be recorded, accessed and shared across a distributed network using “advanced” cryptography.
  • The customer information encrypted on the shared ledger can be validated by referring to government registries, tax authorities and credit bureaus.
  • Banks such as OCBC can also store secured digital records of the validation process on the platform to “streamline auditing and regulatory reporting”.
  • Bahrain’s Electronic Network for Financial Transactions (Benefit) is designing and implementing a Know Your Customer (KYC) utility that incorporates blockchain technology.
  • This is done in partnership with Fenergo, a provider of digital Client Lifecycle Management (CLM) solutions.
  • The implementation then enables Fenergo’s rules engine to determine the required KYC and AML data and documentation for customer due diligence (CDD).
Part
06
of six
Part
06

Blockchain Technology; International Money Transfers & Bond Settlement Use Case

Banks are using blockchain technology to cut costs, eliminate third-party interference, improve security and reliability towards international money transfers and bond settlements.

Blockchain Technology — Overview

  • According to EconoTimes (ET) blockchain technology is "a digital ledger that’s composed of economic transactions that are automated to record everything of value, including financial transactions". The technology helps the banking sector by improving different areas like trade and finance, cross border payments, and international money transfers. It does all this by offering quicker and less expensive ways than current traditional methods.
  • Banks are using blockchain technology to eliminate third-party financial institutions and to improve the process of international money transfers. The UK-based Barclays cut up to $20 billion in cost by eliminating intermediaries from operations and settlements.
  • Blockchain technology enables banks to operate swiftly and reduces the friction for settlement. The World Bank recently launched a blockchain bond that raised 110 million Australian dollars ($80 million). The 2-year bond, arranged by the Commonwealth Bank of Australia aimed at getting rid of manual processes for faster and less expensive automation.
  • Banks use the blockchain technology to improve the issuance and bonds and settlements by making it more secure and efficient. The treasurer of the World Bank was quoted "...will continue to seek ways to leverage emerging technologies to make capital markets more secure and efficient.
  • The push for blockchain technology by the Australian bank is in line with its security exchange plan, to cut costs with a technology to settle equity trades from 2020.

Implementation

  • Banks like the Commonwealth of Bank of Australia, National Australia Bank, CitiBank, Barclays, Standard Chartered and Goldman Sachs are the leading users of blockchain technology in the process of international money transfers.
  • The partnership between the Commonwealth Bank of Australia and the World Bank "to record the secondary market bond trading through blockchain" has allowed for swift and secure transactions. Also, the improvement of international money transfers.
  • Banks are implementing the blockchain technology through the use of Ripple and R3 projects. Banks like the Royal Bank of Canada (RBC), the National bank of Abu Dhabi are using the Ripple projects to eliminate the Swift protocols that involve money being processed by intermediaries. The technology allows all inter-bank blockchain to track transactions publicly and transparently. The Ripple projects provide banks with a faster protocol that allows real-time operations.
  • Santander, another bank using blockchain technology to transfer live international payments, does this through a mobile app. The bank uses the technology provided by Ripple to carry achieve this. Citibank and Goldman Sachs have both started using blockchain technology in their financial transactions and operations, particularly in international money transfer.
  • Other implementation methods of the blockchain technology are through the "BTL Group’s Interbit platform and cryptocurrency BTL". The BTL Group’s Interbit is "an enterprise-grade private blockchain development platform that powers the cross-border settlement solution in collaboration with Visa Europe". This solution allows high volume simulations of international transfers. Visa, the major partner of the BTL Group, invites other European banks to be part of the project.

Pros

  • Blockchain technology offers security to accounts. The blockchain technology is designed with security features making it difficult to hack. Due to human factors involved in current transfer methods, they are prone to hacking or interference by a third party. The technology also offers solutions to the bond market, making the issuance and settlements of bonds more efficient and secure.
  • When using the blockchain technology, integrity and accurate records are guaranteed. Transactions are recorded automatically, and the technology allows all parties access to the information recorded. However, the technology restricts access to the modification of the record, ensuring accurate records.
  • Blockchain technology offers fast and cost-efficient operations. The technology eliminates third-party interference in money transfers which reduces service charges and speeds up the transaction process.

Cons

  • A bond rating agency warns "trusting the unknown other". The elimination of third party institutions, banks, and human factors puts a question on the reliability of codes and entities.
  • Blockchain technology is said to carry out "low transactions per second" with a technological cost.

Research Strategy

To carry out this research, the research team searched through banking publications, technological publications, articles, related industry magazines for information regarding blockchain technology, how banks use it to improve operation, pros and cons on the use of the technology. This search method was fruitful because the information needed was available. We then moved forward to go through research databases, banking platforms, trusted media blogs to corroborate the information.
Sources
Sources

From Part 01
Quotes
  • "Integration with FundsDLT was very efficient and straight-forward. Blockchain technology in connection with potential mutualized KYC (know your client) servicing will be a game changer for the investment funds business. This initiative benefits investors, distributors and transfer agents greatly from an operational efficiency standpoint, and we are only at the beginning of this most promising journey."
  • "Our goal is to collaborate with major players from the fund industry so as to capitalize on the benefits that blockchain technology brings. We are delighted to see a Portuguese innovative bank linking with Credit Suisse Asset Management and test our platform to explore the value that this new infrastructure can deliver. FundsDLT is an international initiative that streamlines a number of activities within the fund distribution value chain, and as a consequence, will reduce costs for the benefits of investors across fund and investor domiciles."
Quotes
  • "As a bank licensed by a reputed supervisory authority, it can offer a comprehensive range of services in the field of digital assets and cryptocurrencies, as well as in traditional banking."
  • "SEBA customers can invest in both traditional and digital assets, store them, trade them and take out loans – now via an integrated interface."
  • "Regulation is crucial for the protection of investors – the idea of an integrated and supervised bank with focus on digital assets arose from the growing demand for investment alternatives and the increasing affinity for technology and process engineering."
  • "The tokenisation of investment products, real assets, rights and primary financing constitutes another mainstay."
Quotes
  • "Digitization is a key element of our strategy, not just in view of our products and services but also in internal and external business processes."
  • "It was therefore important for us to use new digital technology in the syndication process, and to gain experience. We have thus reached a further milestone in digitizing our finance area."
From Part 02
From Part 04
Quotes
  • "Historically inundated with paper trails and inefficiencies, banks and regulators worldwide are teaming up to digitize the trade financing process. HSBC, Standard Chartered, and others belong to a range of consortia that have had successful pilots using distributed ledger technologies (DLT) to process live trade finance transactions."
  • "This analysis explores 5 of the major blockchain consortiums — Voltron, Marco Polo, Batavia, we.trade, and HKTFP — working on DLT trade finance applications, and looks into their recent activity and major milestones."
  • "It allows for more transparency around trade transactions and operations, including everything from tracking invoices to digitizing documents."
  • "Banks in particular favor closed environments because the technology is still new. They also have added regulatory overhead and security concerns, and by forming partnerships, they can collaborate on designing and implementing proof-of-concept (POC) pilots that aim to create a more efficient trade financing process."
  • "In May 2018, HSBC and ING used Corda, in partnership with CryptoBLK, to successfully complete a LOC for Cargill to ship soybeans from Argentina to Malaysia. Typically a manual process that takes between 5-10 days, Voltron was able to cut it down to 1 day."
  • "Challenges could arise around the interoperability of DLT projects — as DLT is closed to trusted parties, it requires that all trading partners use the same ledger."
Quotes
  • "German bank Commerzbank and LBBW conducted the first test transactions on the blockchain platform for trade financing Marco Polo. "
  • "The details of the order and delivery of the products were agreed between the companies through the Marco Polo infrastructure, and the bank of the purchasing company provided a conditional payment commitment. "
  • "After the product was shipped, the relevant shipment information was entered into the blockchain system, where reconciliation with previously reached agreements was automatically carried out."
  • "After reconciliation, the payment process was started. Thus, the complexity and laboriousness of the process of exchanging information and trade finance were significantly reduced while maintaining the security of the transaction."
Quotes
  • "Blockchain can reduce processing time, eliminate the use of paper and save money while ensuring transparency, security, and trust. These are the key benefits of blockchain in trade finance. Removing bad actors and forcing everyone to play fair in a new transparent way of doing business will virtually eliminate the risk of manipulation by participants in the chain."
  • "A quick look at Marco Polo reveals that over a dozen of the world’s foremost financial institutions active in trade finance including BNP Paribas, Commerzbank, ING and Royal Bank of Scotland are already stepping up their attempts to shift trade finance on to blockchain technology."
  • "An indelible audit trail also provides improved traceability; one of the main benefits of blockchain in trade finance. The new verification levels automatically check assets for authenticity. As a result, businesses can reduce both fraud and compliance costs by ensuring that each transaction is recorded sequentially and indefinitely."
  • "From a security perspective, blockchain allows simple, secured share trade-related data between different financial institutions. Each transaction is verified within the network using independently verified complex cryptography."
Quotes
  • "The transaction guaranteed the trade of almost US$100,000 worth of cheese and butter between Irish agricultural food co-operative Ornua and the Seychelles Trading Company. The process – from issuing to approval of the letter of credit, which usually takes between seven and 10 days – could be reduced to less than four hours."
  • "Shorter delivery time for trade documents, reducing from multiple days to two hours; Reduction of time required to crate and transmit documents, as well as labour and other costs through document digitalisation; and Increased transparency by sharing transaction details with all parties."
  • "It is not possible to transmit trade transaction information in digital blockchain/DLT format to parties who do not use the platform – the whole lot has to be done as before if even just one party cannot use it."
From Part 05
Quotes
  • "The distribution book technology (DLT) and the blockchain architecture allows you to collect information from various service providers into a single cryptographically secure and unchanging database that does not need a third party to verify the authenticity of the information. Due to this, it is possible to create a system where the user will only need to go through the KYC procedure once and then use this platform to confirm his identity."
  • "The identity confirmation algorithm in the bank example described above will look like this: --A user submits documents for KYC procedure to one of the banks where he wants to take a loan or use another service. --The bank checks and, if everything is normal, confirms the passage of KYC. --The bank enters the data about the user into the blockchain platform, to which other banks, organizations and state structures have access. --When a user wants to use the services of another bank, this second bank accesses the system and thus confirms the user's identity."
  • "In such an ecosystem, access to user data will be based solely on its consent. To give this consent, the user must log in and, as is the case with cryptocurrency transactions, use the private key to initiate the information exchange operation. With the consent of the user, access to the data may also be provided by a third party (in this case, the bank), but the ownership of the data remains with the user."
  • "A similar concept of the blockchain-based KYC platform has already found practical implementation. The most famous example is the joint project of IBM, Deutsche Bank, HSBC, the Mitsubishi UFJ financial group (MUFG) and the Treasuries of Cargill, which provides an efficient, safe and decentralized mechanism for checking, collecting, storing, updating KYC data and sharing them."
Quotes
  • "A blockchain-enabled KYC utility could be created at one of three different levels: within a large financial conglomerate, nationally, and internationally. Furthermore, other areas must be further investigated to see wider release, such as KYC data quality and requirements, privacy regulations, customer permissions, due diligence, and market competition."
  • "The immutability and transparency of blockchain provides a streamlined way for financial institutions to gain swift and secure access to clean and up-to-date customer data. This results in greater operational efficiency, increased trust between institutions and reduction of labor-intensive data gathering, processing time and costs."
  • "For regulators, the use of blockchain provides a single source of customer data for better understanding and visibility of customer activity across financial intitutions. From a customer standpoint, an institutions use of a blockchain-enabled KYC utility could reduce onboarding wait times and eliminate the need to repeatedly provide the same information to their financial services providers."
  • "While a blockchain-based utility can help banks reduce the burden of time and cost associated with gathering customer information, we believe it is critical banks still perform due diligence on customer information obtained from the platform. Care and attention must be given to issues such as privacy regulations and customer permissions."
  • "KPMG in Singapore and Bluzelle Networks worked with a consortium of three banks in Singapore - HSBC, OCBC, and Mitsubishi UFJ Financial Group, and the Singaporean regulator Infocomm Media Development Authority to develop a proof-of-concept (POC) KYC utility on a blockchain platform. The prototype successfully passed the Monetary Authority of Singapore's test scenarios. In addition to stability, efficiency and security, the platform could result in estimated cost savings of 25-50 percent by reducing duplication and providing a clear audit trail."
Quotes
  • "Blockchain-based KYC has many inherent advantages. Many companies are working on a ‘digital signature’ that would keep a secure copy of all your KYC-compliant documents stored on a blockchain. Particularly if this is a public blockchain, it would be decentralized and both transparent and secure."
  • "A bank or other financial institution who is looking to verify customer identity would simply need to be given permission to access the personal information, making blockchain KYC incredibly efficient. It would also be standardized, so every financial institution globally would be able to share and view the same data."
  • "Updates to personal information would be done in the blockchain, meaning any institution using the system would also be privy to any information changes. Seamlessly, customers could update their personal information across all their accounts simply through their digital signatures. KYC using blockchain would mean that they wouldn’t need to contact each institution with changes, and the institutions would never miss such changes as they do now."
  • "Blockchain in KYC is one of the most promising applications of the decentralized technology, serving a real need by decreasing KYC administrative costs and lost time while at the same time increasing security and transparency."
  • "There is no global standard, so KYC practices vary by institution. This leads to redundant work and limits the ability for different financial institutions to collaborate to verify identity. Customers are subject to time-consuming and difficult-to-accomplish onboarding processes when opening new accounts."
  • "Regulations are often changed, creating costly and effort-intensive obligations for companies to comply. Also, material changes in customer information are often not being updated, which causes inaccurate information in many bank systems."
Quotes
  • "Chris Huls of Rabobank proposed the use case that “KYC statements can be stored on the Blockchain.” Once a bank has KYC’d a new customer they can then put that statement, including a summary of the KYC documents, on Blockchain which can then be used by other banks and other accredited organizations (such as insurers, car rental firms, loan providers etc.) without the need to ask the customer to start the KYC process all over again."
  • "These organizations will know that the customer’s ID documents have been independently checked and verified so they will not need to carry out their own KYC checks, reducing their administrative burdens and costs. As data stored on Blockchain is irreversible, it would provide a single source of truth thereby minimizing the risk of duplication or error."
  • "There is also the advantage for the customer that they only have to supply KYC documents once (until they need to be updated) and that they are not then disclosed to any other party (except for their own bank) as the other organizations will not need to see and check the ID documents but will just rely on the Blockchain verification."
Quotes
  • "Immutability is a defining aspect of blockchain and one that paves the way for new levels of trust. With each unique KYC profile, there can be an auditable trail of activity that no-one is able to change or corrupt — not even bank employees (as is reported to have happened at Danske Bank). "
  • "Moreover, the decentralized nature of distributed ledger technology — even in a private network — removes the risks associated with having single, central points of failure, thereby protecting data from hacks and other cyber-attacks."
  • "For banks, the benefits are myriad: greater security, consistency and operational efficiency; increased interoperability between institutions; an end to costly, time-consuming duplication of data-gathering, data-processing and data verification; and, ultimately, enhanced regulatory compliance."
  • "For regulators, meanwhile, blockchain makes data on customer activity more visible and more reliable. And for the hard-pressed customer, blockchain-based KYC systems augur reduced on-boarding times and increased confidence in financial service providers."
Quotes
  • "IBM has been working with banks around the world on early stage shared KYC projects based on blockchain. In fact, in January 2018, IBM announced successful completion of the “Proof-of-Concept Blockchain-based Shared KYC” in collaboration with leading financial institutions such as Deutsche Bank and HSBC"
  • " The implications of this technology for the financial industry are enormous, as is clear from the IBM announcement: “Banks will be able to use such a platform to enhance the customer experience, automate mandatory processes and eliminate duplication through harmonizing and sharing KYC information resulting in operational savings and, over time, reduced operational risk. The corporates also benefit from reduced paperwork by doing KYC once and sharing it with relevant financial institutions through a user-controlled consent model."
  • "The enhanced customer experience and cost savings offered by blockchain for KYC are significant. However, as the announcement also makes clear, the transparency of blockchain technology also empowers governance, risk and compliance across an organization:"
  • "The governance of the shared KYC network will include regular certification of contributing banks to assess their compliance with the harmonized standards and provide transparency and confidence to the wider group of participating banks"
Quotes
  • "IBM announced the successful completion of the Phase I proof-of-concept (POC) of its Shared Corporate Know Your Customer (KYC) project with Deutsche Bank, HSBC, Mitsubishi UFJ Financial Group (MUFG) and the Treasuries of Cargill, IBM."
Quotes
  • "OCBC Bank, HSBC and Mitsubishi UFJ Financial Group (MUFG), together with the Infocomm Media Development Authority (IMDA), has become the “first consortium” in South East Asia to complete a proof of concept for a know your customer (KYC) blockchain."
Quotes
  • "Bahrain’s Electronic Network for Financial Transactions (Benefit) is designing and implementing a Know Your Customer (KYC) utility that incorporates blockchain technology, in partnership with Fenergo, a provider of digital Client Lifecycle Management (CLM) solutions."
  • "This will prompt Fenergo’s rules engine to determine the required KYC and AML data and documentation for customer due diligence (CDD) as subscribed by Central Bank of Bahrain. Once the customer is quickly and successfully onboarded, Fenergo will write data attestations to the blockchain for reuse by other financial institutions within the Bahrain ecosystem."
  • "Fenergo is developing the cloud-based utility as part of an initiative mandated by the Central Bank of Bahrain (CBB) to enable financial institutions to seamlessly perform CDD checks for enhanced customer experiences and regulatory certainty. The initiative is part of a wider government scheme, Economic Vision 2030, to improve the kingdom’s economy."
From Part 06