Blockchain in banks

Main article: Blockchain

Blockchain in Russian banks

Main article: Blockchain in Russian banks

• Blockchain in the Central Bank of Russia
• Blockchain in Sberbank

2023

Commerzbank launched blockchain banking operations

On July 26, 2023, Commerzbank announced that it was the first German bank to successfully operate in real time on the international trade finance platform Contour. Read more here.

Indian banks start opening blockchain accounts

In mid-June 2023, investment bank JPMorgan announced the launch of a pilot project to conduct interbank dollar transactions in India using blockchain. As part of the pilot project, six Indian banks will open blockchain accounts that will allow instant settlements (24x7) with JPMorgan's branch in Gujarat International Financial Tech City (GIFT City). Read more here.

2021: Juniper Research: Blockchain will save banks $10 billion in international transactions

In early November 2021, Juniper Research analysts released a study stating that the introduction of blockchain for cross-border settlements will lead to increasingly significant cost savings for banks: from $301 million in 2021 to $10 billion in 2030. This technology, according to experts, will help stakeholders use improved transparency and traceability of payments, which is a critical advantage in the omnichannel payments market.

The report said major trading countries, such as USA and, would get China the biggest cost savings from blockchain use, helped by large amounts of remittances and an increasingly favorable regulatory environment. In developed high-cost money transfer markets, blockchain's potential to meet critical demands for fast, reliable and transparent payments will be a key driver of implementation.

Juniper Research: Blockchain will save banks $10 billion in international transactions

As a result of increasing integrations with large payment players in wide trading corridors, blockchain solutions such as RippleNet and Visa B2B Connect already offer significant payment efficiency compared to traditional systems. In addition, Ripple has joined the ISO 20022 standardization body, an international standard for the exchange of electronic messages between financial industry organizations, which allows it to take a strong position in introducing blockchain into international payment standards.

As these networks are built, Juniper Research expects blockchain adoption to grow and expect 2 billion cross-border blockchain transactions in 2030. The reluctance of payment transaction participants to change the established business practice and abandon outdated systems represents a significant obstacle to the widespread introduction of blockchain. Clearly communicating the benefits of blockchain versus the investments needed for implementation will be critical to engaging stakeholders.

Study author Suzanne Hampton noted that current international remittance processes are severely constrained by outdated systems. Hampton added that proving cost savings through the use of blockchain would be critical to the spread of the technology, as would shaping a top-down culture of technology adoption.^[1]

2019

Cross-border money transfers between companies via blockchain $171 billion

In early November 2019, the analytical company Juniper Research published a study in which it is reported that by the end of 2019, the total volume of cross-border payments between companies through blockchain systems will reach $171 billion, and by 2024 will exceed $4.4 trillion.

The report, titled "Blockchain: Key Opportunities, Trends and Challenges 2019-2030," indicates that financial institutions will save up to $7 billion by 2024 on client base checks thanks to automatic user identification using blockchain.

Juniper Research published a study that at the end of 2019, the total volume of cross-border payments between companies will reach $171 billion.

The adoption of blockchain technologies is part of a broader strategy to digitally transform banking operations. Blockchain will allow stakeholders to reduce operating costs in a competitive market that is becoming more commercialized, says study author Dr. Morgan Kimmich.

Juniper Research evaluated 15 leading suppliers of blockchain systems, evaluated them based on industry experience, marketing programs and customer engagement activity. The study praised IBM for its diverse blockchain solutions with a wide customer base, including financial companies. In addition, Infosys Finacle has established itself as a leading provider of blockchain systems for financial institutions, which has large international partners and supplies popular blockchain products.

Ripple, Visa and IBM are driving the innovative application of blockchain technology in cross-border payments, the study found. Ripple has been leading the market since 2012, but is already facing growing competition from Visa B2B Connect and IBM Blockchain World Wire, which have branches in 60 countries and have found large partners in the financial ecosystem.^[2]

JPMorgan hires blockchain specialists the most in the financial sector

By the end USA JPMorgan of March 2019, it turned out that the largest bank hires more blockchain technology specialists than any other financial company on Wall Street. This is evidenced by the results of a study conducted on the Indeed.com vacancies portal from February 2018 to February 2019.

In the top ten companies that posted vacancies with the keywords "blockchain," "cryptocurrency" or "bitcoin," JPMorgan turned out to be the only representative of the financial sector. In general, financial and banking institutions practically do not open vacancies in this segment. Since 2016, the number of vacancies related to cryptocurrencies and blockchain technologies has increased by 4,086%, and the number of requests in these areas has increased by 553%. At the same time, from February 2018 to February 2019, the number of jobs related to blockchain technologies decreased by 67% - interest in them fell with the fall in the cryptocurrency exchange rate.

JPMorgan hires more blockchain technology professionals than any other bank

Still, JPMorgan remains interested in using blockchain. In October 2018, JPMorgan announced the launch of Quorum, its own corporate blockchain platform based on Ethereum. Later, in February 2019, JPMorgan introduced the JPM cryptocurrency, which was developed for instant transactions between customers on the JPMorgan Chase payment network. In addition, the company knows and values ​ ​ the benefits of distributed register technology, which can reduce the cost of transactions and increase their efficiency.

More blockchain professionals than JPMorgan employ tech companies like IBM and Cisco, as well as consulting Accenture, EY and KPMG. The top 10 also includes Microsoft, ConsenSys and the little-known company Conduent, which develops platforms for large corporations and government agencies. The top 10 leader in the number of vacancies related to blockchain technologies is Deloitte.^[3]

KPMG: blockchain will help optimize work with taxes and fees

Companies are often entangled in a web of tax policies, financial regulation and legal regulations that are constantly changing. These changes can have a large, often immediate impact on company revenues, cash flows and tax status. This is especially true for multinational corporations that regularly move goods, services and intellectual property across blockchain^[4]

To adapt to these sometimes frequent and unexpected changes in tax regulation, tariffs, subsidies, quotas, etc., Chief information officer, CFOs and even chief tax inspectors turn their eyes to innovative blockchain technology. It is used to simplify tax and financial actions in such a way that this is immediately reflected in cash flows, income and profit.

Blockchain initially gained popularity thanks to cryptocurrencies such as bitcoin. Blockchain creates a single registry that helps track numerous interconnected transactions and their business implications. Real-world examples show that blockchain can solve pressing business problems, such as creating more transparent supply chains for food companies or reducing fraud in the financial services sector.

Untangling tax and financial issues

Unsurprisingly, blockchain can become a particularly useful tool in the world of corporate taxes and finance. By helping top financial executives diagnose taxes, tariffs and their financial implications in real time, and automate certain processes, blockchain can optimize the time that working capital is tied to a transaction. In addition, blockchain allows you to reduce or even eliminate fees and errors by reducing dependence on a third party when conducting transactions.

For example, KPMG applies blockchain to help companies by exploiting gaps in the customs duty collection order: refunds of certain duties, taxes and fees collected from imported materials that were exported in an unused state were destroyed by US Customs and Border Protection or subjected to additional processing in the United States and were subsequently exported. The return of customs duty may be an important incentive to increase cash flow. So important that it is able to encourage companies to export. The refund could also offset the additional 25% duty levied on Chinese imports.

Many companies fail to maximize returns due to a lack of data in a convoluted web of systems, unhindered record storage processes, lack of resources, and reliance on third-party organizations. Transferring return data to the blockchain eliminates the need to manually enter data into various systems, thereby reducing the number of errors and creating a single source of genuine information. Ultimately, thanks to blockchain, it is possible to improve the entire process and ensure that companies can return significant funds.

Companies can also use blockchain to calculate taxes and their financial implications in any jurisdiction in real or near real time, tracking the transactions of each of their affiliates and reducing them to a single, easily accessible digital registry.

For example, one industrial company uses blockchain to provide near-real-time visibility into the location of parts as they are created, delivered, imported and exported at multiple locations around the world. Thus, blockchain gives a visual idea of ​ ​ inventory. However, the manufacturer went further and began using blockchain to track taxes and financial consequences associated with the movement of parts. Each such movement is reflected in taxes and entails various financial consequences due to the requirements imposed at the intermediate points of the route, transfer value, bill of lading, international maritime laws and insurance. Add domestic transportation to that. Thanks to the increased visibility of all this, the company managed to optimize its tax and financial obligations.

2017

Canadian central bank creates blockchain system to manage securities and payments

On October 18, 2017, it became known that the central bank of Canada, Toronto Stock Exchange operator TMX Group and Payments Canada began joint testing of the use of blockchain technology to automate securities settlements. Read more here.

Microsoft will transform blockchain-based financial systems as part of IC3

Microsoft On September 5, 2017, the corporation announced that it was joining an initiative IC3 (Initiative for Cryptocurrencies and Contracts) to transform financial systems based on. blockchain The main task of the project is to transform future financial institutions using blockchain technology so that they become more flexible, transparent, efficient and secure.

Europe's biggest banks create blockchain platform for international transactions

In January 2017, the seven largest European banks merged to create a common financial platform for cross-border trading based on blockchain technology. The new solution is addressed to representatives of small and medium-sized businesses. Read more here.

Blockchain will help banks cut costs by $12 billion

Blockchain technology will help investment banks reduce infrastructure support costs. According to Accenture at the beginning of 2017, we are talking about very impressive amounts - by 2025, savings on operating costs will range from $8 to $12 billion. Experts named these amounts after analyzing spending data from eight of the ten largest investment banks in the world, which made it possible to get an idea of ​ ​ the potential of blockchain, writes Reuters at the beginning of the year . The forecast does not take into account the investments required to implement the technology.

According to Accenture, blockchain transactions helped banks save significantly by simplifying financial reporting procedures (by an average of 30%) and internal financial control. The costs of the latter were reduced by 50%. The authors of the report still warn that the massive introduction of blockchain may stall the legal aspect:

"After the credit crisis in 2008, regulators are likely to be reluctant to significantly reduce the role of the newly created and strengthened settlement and clearing infrastructure until they are absolutely confident that blockchain is a safe, reliable and sustainable alternative."

2016

Why are the biggest banks fleeing the global blockchain-R3?

In November 2016 R3 , two companies left the global blockchain consortium at once, which were at the origins of the creation of the syndicate - Goldman Sachs and the largest financial and credit group Spain Banco Santander. Read more in a separate article.

Numbrix Offers Microsoft Azure-Based Asset Management Blockchain Solution

Fintech startup Nimbrix partnered with KPMG and Microsoft in November 2016 to create a blockchain consortium for asset management.

Nimbrix offers the market a next-generation investment management platform. It implements the advantages of Microsoft Azure, block circuits and open Application Programming Interface (API) interfaces, which avoids problems with outdated fragmented systems that are usually used on the^[5] side^[6].

Company representatives assure that authorized users can easily share, supplement and analyze Nimbrix data. At the same time, transactions between counterparties can be carried out almost instantly, which reduces the risk of errors and non-fulfillment of the transaction.

"It's more than just a product," emphasizes Nimbrix CEO Simon Bullers. - This is a revolutionary approach to software for the financial services sector. It takes years to deploy and transition to traditional solutions for this industry, and you can implement the Nimbrix platform within minutes and then fully migrate to it in just a few months. At the same time, since this software is provided in the format of "services" (SaaS) based on Microsoft Azure, companies will be able to avoid the need for huge preliminary investment. "

The central banks of the world are exploring the benefits of issuing digital cash on the blockchain

In a few years, using blockchain technologies, central banks of different countries will begin to abandon the release of cash and replace it with a "digital cash." This forecast was given by representatives of companies and banks involved in the development of blockchain systems at the Russia Risk Conference in October 2016. For more information, see Digital Cash

First cross-border blockchain trade deal

On October 24, 2016, it became known that banks had made the first cross-border trade deal using blockchain technology. This was reported by the Reuters news agency.

Australian financial conglomerate Commonwealth Bank of Australia (CBA), cotton retailer Brighann Cotton Marketing Australia and US bank Wells Fargo took part in a deal to supply cotton from the United States to China, using trading and banking as part of a blockchain system. With its help, 88 packages of goods were shipped for a total of $35 thousand.

The CBA noted that blockchain provided transparency of the transaction between the buyer and seller, as well as a high level of security and the ability to track the delivery status of products in real time. In addition, eliminating paper accounting in favor of distributed registry-based electronics reduces errors and reduces the time required to perform some operations from days to minutes.

Commonwealth Bank of Australia makes first-ever cross-border blockchain trade deal

The current settlement processes for international trade operations have come to a revolution. The tried-and-tested method demonstrates how companies around the world can benefit from these new technologies, "said Michael Eydel, executive general manager of CBA transaction and cash flow services.

According to Wells Fargo, head of international trade services, Chris Fargo, the company is committed to developing and supporting new technologies, although "significant regulatory, legal and other issues still remain unresolved."

As Reuters notes, the deal, which was carried out by CBA, Brighann Cotton Marketing Australia and Wells Fargo, was not the first time blockchain was used, but it marks an important milestone for the traditional banking industry due to the fact that law enforcement agencies are increasingly difficult to track cash flows.

Thanks to automatic transaction processing, blockchain is particularly attractive for cross-border transactions, which are often delayed due to duplication of payment processing work and time zone differences.^[7]

WEF report: "The future of financial infrastructure: a bold look at how blockchain can transform financial services"

In August 2016, the World Economic Forum published a report entitled "The Future of Financial Infrastructure: A Bold View of How Blockchain Can Transform Financial Services."

The study, the results of which formed the basis of the report, was conducted for 12 months. It included interviewing leaders of the financial industry, experts, representatives of innovative companies, as well as a series of workshops, in which a total of about 200 participants were involved. The Forum was assisted in the preparation of the report by the consulting company Deloitte.

Over the past three years, more than 2.5 thousand applications for patents related to blockchain have been submitted, and the total investment in this area for the same period amounted to $1.4 billion, the report shows. The authors of the document predict that in 2017 already 80% of banks will begin to use blockchain technology.

The authors of the report note that awareness of blockchain technology has grown significantly, but there are significant obstacles to its large-scale application. Among them - uncertainty in the legal field, just emerging collective efforts to standardize in the field of blockchain, etc.

The key findings of the study are as follows:

• Blockchain has great potential to bring simplicity and efficiency to the financial area through the creation of a new financial services infrastructure;
• Blockchain is not a panacea: it should be considered as one of the many technologies on the basis of which the next generation financial services infrastructure will be formed;
• Blockchain applications will vary on a case-by-case basis, and in each case blockchain technology will be used differently for different benefits;
• Digital identity identification is critical for blockchain use to extend to new verticals; electronic fiat currency (electronic money expressed in one of the state currencies and being one of the types of monetary units of the state payment system - note TAdviser), along with other emerging opportunities, can increase the benefits of using blockchain;
• In areas where the application of blockchain would give maximum effect, deep cooperation between market participants, developers and regulators will be required, which will complicate and delay its implementation;
• A new blockchain-based financial services infrastructure will build processes in a new way, and challenge the traditional approaches that underlie today's business models.

The report also provides examples of nine blockchain use cases that could alter processes in the financial industry. The first use case is cross-border payments. Here, especially in remittances, changes are expected to happen the fastest. The main example of use is transfers for small amounts between individuals or enterprises for which the use of bank services is too expensive.

International payments (current state of the process)

Cross-Border Payments (Future Process Status)

Storing digital profiles of the sender and recipient of money on the blockchain will quickly establish trust between the parties and identify the user. Also, blockchain will allow banks to make real-time settlements, reducing the level of fraud by making micropayments available to users, and eliminating errors in the processing of transactions by using smart contracts.

Another example is the insurance case. Blockchain has the potential to optimize the operating costs of the back office of an insurance company that compensates for damage to property and health, the authors of the report believe. By using a smart contract, filing will be automated and simplified, reducing the need for brokers and reducing fraud.

Handling of insurance claims (current state of the process)

Handling of insurance claims (future state of the process)

Two more examples are considered in the field of deposits and lending: they relate to syndicated loans and transaction financing. According to the authors of the report, bitcoin technology has the potential to optimize back-office operations for issuing syndicated loans. The procedure will become more transparent and automated. Some companies have already begun work in this direction.

As for financing transactions, here blockchain has the potential to reduce the cost of operations. Blockchain technology can improve almost every step of processing trade deals - from the ability to monitor a deal in real time to proof of ownership, saving the parties to the transaction from having to resort to the services of correspondent banks, the report said. It also effectively solves the problems of double spending - problems that are especially relevant in financing trade transactions.

The full report with examples can be downloaded here.

Visa creates SWIFT competitor based on blockchain

Together with blockchain startup Chain, Visa is working on a system of interbank and corporate large money transfers made in almost real time.

The purpose of the Visa B2B Connect pilot project, planned by the card system for 2017, is to improve B2B payments through the introduction of a system that in real time should ensure the direction of notifications and the finality of payments within the framework of the immutable system of permitted personal records ^[8].

Starting this development, Visa becomes a competitor to the SWIFT interbank transfer system and other new leadership contenders such as Ripple Labs.

• The company is working with Chain, a blockchain player in the financial space. The startup has raised more than 40 million in funding dollars USA from Khosla Ventures, RRE Ventures and strategic partners including Capital One, Citigroup, Fiserv, Nasdaq, Orange and Visa. Chain is working with interested investors on various scenarios for using the technology for later deployment in financial markets, most notably Nasdaq in the private company securities market (Nasdaq Private Market), for proxy voting and clearing purposes.

• This is not the first time Visa has experimented with blockchain technologies. In September 2015, the company's division carried out a two-month Proof Of Concept (Proof Of Concept) in collaboration with Epiphyte through imitation of real money transactions using distributed registry technology.
• In September 2016, Visa Europe, together with the Vancouver-based BTL division, launched a pilot project to apply blockchain technology to local and cross-border payments.

Bitcoins in the niche. Blockchain is not risky. SWIFT in the problem area

According to a report by Credit Suisse, members of the payments sector of Visa, Mastercard, WorldPay and others should not worry: bitcoin will remain niche players, and block chain technology poses little risk.

Responding to investors' concern about block chain technology and its ability to destroy traditional industries in the future, Credit Suisse has prepared a report in which it combined the results of an analysis of the impact of this technology on 14 companies operating in different fields - the payment industry, capital markets, financial services and the media^[9].

The authors of the report concluded that bitcoin will not be easy to stand in a number of main forces, identifying 13 obstacles to its widespread use. In contrast, distributed registries are seen as a more powerful force with three main properties:

• refusal of trusted intermediaries,
• record integrity
• smart contracts.

They give this technology real advantages over traditional systems.

The report reflects the possibility of permitted public registers - to save the payment system from the central coordination center represented by Visa and Mastercard. However, the bank's analysts consider the risks for these payment systems very small, arguing that the decision of structures like Apple to take the tokenization process under the control of their networks makes their position strong.

Concerns about firms such as WorldPay are misplaced, said the report, which ranks the company's shares "above average market" rating, while DH Corporation is given the same valuation on a number of parameters as it is a partner at Ripple and ready to implement blockchain.

Fintech giant Fiserv (Faiserv) is facing a bigger threat. He was given a "neutral" rating. According to the authors of the report, "as blockchain-based applications unfold around core financial services, FISV could face competition in the banking technology space." Fiserv (Faiserv) is immune to this threat by investing in startup Chain, along with Nasdaq, Visa, Citi and Capital One.

SWIFT could face challenges, the researchers noted. Sluggish and expensive SWIFT with systems that are decades old. It is not flexible enough and faces growing security threats, a recent attack on Bangladesh bank confirmed.

The report calls for the adoption of blockchain technology: a low-cost, fast, virtually unbreakable, fully automated end-to-end transaction system built on the basis of private approvals.

The capital markets section of the report says - blockchain is more of an opportunity than a threat to the London Stock Exchange, which has been rated "above the market average." However, the market has "apparently overlooked the risks" for some stock exchanges, including Australian Securities Exchange, which is trying to use the technology to address existing delays in the actual execution of financial transactions after trading.

In financial services, Goldman Sachs' positions are seen as favorable to taking advantage of blockchain, thanks to the banking conglomerate's direct investment in the technology. JPMorgan has also been praised for its determination to invest in distributed registry technology, both within its structure and through partnerships with startups.

Four major banks plan to create a new digital currency on blockchain

The Swiss bank UBS (SWS, United Business Systems) , with the support of the ​ispanskogo Bank, Santander the German, Deutsche Bank the American Bank of New York Mellon Corporation and the British broker ICAP, intends to issue a new digital currency based on blockchain technology (), blockchain which is used in settlements in bitcoins, reports Financial Times^[10]

Blockchain system as an alternative to SWIFT

The cornerstone around which numerous innovations in finance are built in early 2016 is distributed transaction confirmation technology, which was first implemented in cryptocurrency Bitcoin"" and was named. blockchain Technically, it's a huge database with no central leadership, storing deal information. Transaction verification is carried out by the system participants themselves, who confirm the authenticity of the actions performed, and then form blocks from transaction records.

This approach is interesting for several reasons. Firstly, blockchain does not need intermediaries in the face of expensive payment systems that now process transactions. Secondly, the processing speed of operations is increased. In a traditional scheme with a clearing organization, this process can take up to several days, and in the case of blockchain, transactions take place in real time.

"Blockchain can save banks billions of dollars by eliminating slow and expensive centralized payment systems," says Hugh Yoshida, CTO of Hitachi Data Systems^[11], which ^[12].

For 2016, the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system is used for interbank settlements. This platform is rightfully considered the "circulatory system" of the global economy, since more than 11 thousand financial organizations in more than 200 countries of the world are connected to it. Cash payments are maintained using unique six-digit codes (BICs) assigned to each bank. The financial institution is charged for the ability to work in the SWIFT system. Payments usually take from 1 to 3 days to complete, but this period may be longer depending on the location and digital belt of the sending bank and the receiving bank.

British Barclays began working with a startup, with a license to release cryptocurrency

In the spring of 2016, Barclays entered into a partnership with fintech startup Circle, a cryptocurrency company based on Blockchain^[13].

According to reports MEDIA, earlier, Circle, which managed to attract investments of 76 million, dollars USA was the first to receive a license to issue electronic money from the financial regulator, and Great Britain also got one of the former top managers of JPMorgan Chase, Blis Masters, as an investor.

Circle allows users to forward money by supplying the payment with messages, emojis and even "GIFs." In 2015, the company launched its services in the United States, this is counting on Europe.

Now transfers are available in pounds sterling and US dollars, but if a user wants to send money to a country where Circle is not yet working, the payment will be automatically converted to bitcoin, forwarded, and then transferred to the currency of that country.

Notes