The debate surrounding blockchain – or more specifically distributed ledger technology (DLT) – and its viability for widespread rollout across the global financial system rumbles on, but it seems that we are beginning to see clearer signs of how this area of innovation could have a real impact on the industry.
This is particularly true in payments, with the latest DLT solution reportedly offering the potential for “fast, efficient and cost-effective” cross-border transactions.
R3, an enterprise software firm that works with more than 100 banks, financial services providers, regulators and other groups, recently announced a cross-border payments solution based on the Corda DLT platform.
A prototype developed in collaboration with 22 of R3’s member banks – including Barclays, BBVA, HSBC, Natixis and U.S. Bank – is due to be released by the end of 2017.
According to the software firm, this system differs from previous DLT initiatives because it is the first to develop a shared infrastructure to facilitate the full payments workflow.
Putting forward the case for a more efficient international payments network, R3 argued that businesses in particular are being disadvantaged by the high cost and inefficiency of cross-border transactions, having become accustomed to real-time payments in their domestic markets.
As well as speeding up trade, a DLT-based international payments system could lower fraud risk by reducing the amount of time required for a transaction to be completed.
David E. Rutter, CEO of R3, said international payments have “struggled to keep pace with the explosion of global trade and the globalization of the world’s markets”.
He added: “This marks a significant milestone for distributed ledger technology as we work alongside our bank members to harness its unique attributes to build the world’s first true international payments system. This solution will be a game-changer for any bank or company whose business relies on making or receiving cross-order payments.”
This follows on from IBM’s recent announcement of what it called a “major blockchain solution” to speed up global payments.
Meanwhile, one of the highlights of the October 2017 Money 20/20 event in the US was a ‘payments race’, which saw five people embark on a race from Toronto to the host city of Las Vegas using five different payment types: gold, contactless, chip-and-PIN, Bitcoin and one dollar notes. Perhaps surprisingly, the winner was Bitcoin – the cryptocurrency that introduced the blockchain concept to the world.
The credibility challenge
It’s clear that DLT has plenty of potential to deliver improvements and drive efficiency in various areas of financial services, but one of the challenges the technology still has to overcome is proving itself as a genuinely credible, feasible candidate for widespread rollout.
As Reuters recently reported, there are mixed opinions on this subject, with German bank Berenberg dismissing blockchain as an “overhyped technology”. The bank argued that there have been many trials and pilots, but relatively few clear-cut successes.
UBS Wealth Management, on the other hand, predicted that blockchain could add up to $400 billion of annual global economic value by 2027.
As has been the case with so many other innovations and pioneering products, the success of DLT could eventually depend on the customer. If businesses and consumers demonstrate an interest in using blockchain for payments, for example, it won’t take long for established banks, emerging fintechs, and various providers in between, to begin competing to serve this embryonic market.
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