Blockchain Use Cases in Banking and Finance

From ICICI bank to Nasdaq, many legacy and digital entities in the banking and financial world are now embracing Blockchains, albeit, on an experimental pace. The technology can bring a lot of changes when applied, especially to existing ways and infrastructure in the BFSI space. Every bank or entity is gauging and testing this disruptive technology with different goals and context.

Here’s how some global as well as Indian banks are experimenting with Blockchain technology.

Global Use Cases of Blockchain

Not all banks which are trying Blockchains are going full-throttle. Many prefer a hybrid blockchain system, where a tiered blockchain network or a combination of both public and private blockchains is injected, which apparently reduces the impact and overwhelming scale of change that this concept usually spurs. Many banks are exploring Blockchain without fully replacing their existing systems. The formats and deployments are also diverse and full of new possibilities that only add, and not weaken, what’s already there.

Here are some examples of Blockchain experiments happening globally:

Bank of America Files 20+ Blockchain patents: In August 2017, Bank of America came up with new patents strengthening its roster of now-20 blockchain and cryptocurrency-related patent applications. The bank has been busy doing so since 2014 and has covered areas like exchange and payment process, including real-time conversion, transaction validation, risk detection and online and offline storage. 

China Construction Bank Creates Blockchain Platform for Bancassurance: China Construction Bank (CCB) manifested intents to begin using a custom blockchain platform for bancassurance, whereby it will move a process by which the bank today sells third-party insurance products to a distributed ledger. The idea is to bring up customer experience and transparency while cutting down processing times. 

Nasdaq allows digital representation of share ownership: Nasdaq has already gone ahead with Linq, through which private companies can digitally represent share ownership using blockchain. 

Barclays joins foreign-change focused blockchain consortium: Barclays, last heard, has also joined a foreign exchange-focused blockchain consortium where JP Morgan Chase, Goldman Sachs and Bank of China are already active and looking at areas of increasing efficiency and security in the forex settlements industry.   

The CLS Consortium uses an open-source Hyperledger Fabric blockchain:  This platform will operate side-by-side with the existing Swift solution and will not be forced on customers. This very possibility made it easy to trigger an interest as Lee Braine, from the Barclays Investment Bank's CTO office, shared in media reports. At the highest level, the bank may see transactions being fully reliant on distributed ledgers without a centralized backup system. But for now, the bank wants to learn how this part will play out in the real world.

Royal Bank of Canada Transfers Funds to and from the US: The Royal Bank of Canada is trying out blockchain by the Hyperledger blockchain consortium for fund transfers to and from the U.S. The attraction came from their ability to monitor payments in real time as they pass between U.S. and Canadian banks, as well as benefits of simplifying transactions and lowering costs. New use cases like consumer rewards and loyalty offering, and smart contracts are on radar.

German Bank Group Replicates €100,000 security: A group of German banks in the meanwhile is working with the R3 blockchain consortium and has successfully replicated the sale of a €100,000 security on a distributed ledger platform. Commerzbank, KfW Banking and MEAG etc. are looking at a trial method to see what shapes up with fewer intermediaries, real-time visualisation and in a shorter timeframe. Launched in 2015, R3 is a notable financial consortium with a sharp focus on blockchain and members spanning over 100 banks, regulators, trade associations and professional services firms.

Front Row Adopters of Blockchain in India

In India, the blockchain wave is being felt in an unmistakable way. Axis Bank, YES Bank, and Kotak Mahindra Bank are all set for adventures with the bitcoin universe while TCS and Infosys are busy developing core banking platforms in the new context of blockchains. RBI’s own research arm, Institute for Development and Research in Banking Technology (IDRBT), is busy working closely with the regulators, banks, financial institutions and clearing houses to explore it in an end-to-end way. A fresh and successful proof-of-concept for a trade application is a starter on an ambitious road for the country’s financial system.

That says a lot.

So does Chanda Kochhar, MD and CEO of ICICI Bank. She reveals that the attraction lies in making complex bilateral and multi-lateral banking transactions seamless, quick and more secure – as shared during announcement of using blockchains for international trade finance and remittances. The bank chose to be a first-mover to exchange and authenticate remittance transaction messages as well as original international trade documents related to purchase order, invoice, shipping and insurance by deploying blockchain in real time. Next the team may expand the blockchain ecosystem and create common working standards to contribute to the commercial adoption of this initiative.

What all these experiments are doing is something that will actually drive acceleration and confidence in Blockchains – because that’s what a high-stake and high-scale organisation like a bank or financial entity will ultimately need.

Other Interesting Reads:

Blockchain for Banks: Benefits and Implications