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Beijing / AFP
Asian lenders are spending millions of dollars developing applications using blockchain, a technology that promises to slash transaction costs, expedite cross-border payments and reduce the risk of fraud.
Banks active in the region from Standard Chartered Plc to National Australia Bank Ltd. have in recent months started developing and testing systems utilizing the distributed-ledger technology in areas from international fund transfers and trade-finance invoices to cheque issuance.
Blockchain promises “a fundamental change to banking†but its success depends on the adoption of uniform standards by banks, Mizuho Financial Group Inc. Chief Executive Officer Yasuhiro Sato said at a financial technology conference in Tokyo on Sept. 21. The technology will definitely be used in banking within five years and likely “shorter than that,†he said.
Between 2010 and 2015, blockchain-focused fintech firms attracted $613 million of investment globally, almost half of which came last year, according to estimates by consultancy Accenture. Lenders will need to at least make sure their internal systems are able to adjust to the new technology when it takes off, said Thomas Olsen, a partner at Bain & Co.
Blockchain could reduce banks’ infrastructure costs worldwide by $15 billion-$20 billion a year by 2022, according to law firm White & Case. The 36 major Asian banks tracked by Bloomberg Intelligence had combined expenses of about $380 billion last fiscal year.
The blockchain projects that some banks active in Asia are exploring inlcude BOC Hong Kong (Holdings) Ltd.: Planning to use the technology by the end of the year to value property and improve the efficiency of processing mortgages Standard Chartered, Siam Commercial Bank Pcl: Among firms that invested $55 million in Ripple, a San Francisco-based technology developer that is developing systems to make it easier and faster to send payments around the world.
Blockchain can cut the cost of cross-border settlement to a 10th of current costs, according to Mizuho’s Sato, whose bank has also joined Ripple’s network. Bank of America Corp., HSBC Holdings Plc: Working with the Singapore government on a distributed ledger that enables paperless letters of credit for trade finance. Bank of Tokyo-Mitsubishi: Started testing with Hitachi Ltd. a blockchain system for issuing, transferring and collecting electronic cheques in Singapore.
Bangkok Bank Pcl: Thailand’s largest lender by assets joined R3, a consortium based in New York and London that’s also developing distributed ledger technology and currently backed by more than 50 banks.