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Finance

Indian Bank removing friction in business transactions using blockchain technology

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Guest post: Rajendra Mhalsekar, President, Head, Corporate Banking Technology, YES Bank  

Blockchain technology is poised to disrupt nearly every industry from key players to core functions – and the banking and financial markets industry is at the forefront. In a recent IBM IBV Study, 15 percent of banks and 14 percent of financial market institutions said that they intend to implement full-scale, commercial blockchain solutions in 2017. Mass adoption isn’t that far off either, with roughly 65 percent of banks expecting to have blockchain solutions in production in the next three years.

India’s fifth largest private bank, YES BANK, is among the first wave of institutions around the world to publicly announce innovation in payments using blockchain and cognitive technologies. Collaborating with IBM in 2015, it was the first bank in India to have launched API Banking services, which is a technology protocol allowing one access to the bank’s transaction processing services from an ERP environment in a secure manner.

Making use of blockchain technology

By capitalizing on the efficiency and security features of blockchain, YES BANK has used Hyperledger Fabric to design an innovative supply chain financing solution. It will aim to reduce the turn-around-time for an invoice to payment cycle from the current 60 days to near rapid real-time processing. This will help recognize enhanced efficiencies in terms of cost as well as resources.

Using the Hyperledger Fabric 0.6, YES BANK is working to implement a permissioned blockchain network. This means that each node, or network participant, is required to prove its identity as a member of the network, thereby helping banks to maintain transaction anonymity on the shared ledger while retaining confidentiality of the contract between business users.

Helping resolve YES BANK’s payment challenge

The blockchain solution helps YES BANK resolve complex vendor payment issues. For instance, the bank’s vendor financing solution allows its client Bajaj Electricals to digitize the process for the discounting and disbursing of funds to its vendors by seamlessly integrating with the bank’s systems. The integration of both upstream and downstream systems offering automated processing of transactions greatly reduces the need for manual intervention with the help of YES BANK’s API Banking.

Governing these transactions, the business logic and rules are now captured in a specifically designed “smart contract” chain code. Furthermore, implementation uses a superior Cryptokey, which offers state-of-the-art security for both documents and transactions on the Blockchain. Therefore, YES BANK helps ensure the Financial Supply Chain is more robust, secure and seamless, offering a great customer experience and making a significant impact on the overall Global Transaction Banking space.

Blockchain aims for transparency

Blockchain technology ensures maximum transparency because of its structure, which does not allow for data to be altered by any one party, and works in append-only mode (meaning that records can only be added, not deleted or changed further back on the chain). This allows banks to more accurately track customer payment histories, across borders and banks, reducing the risk of defaulters.

With the recent focus on the financial industry where fintechs and banks are collaborating to make user experience more positive, the transparency in the system will go a long way to transform transactions.

A key consideration with the advent of blockchain technology in business is the regulatory climate. In India, government regulators are already beginning to embrace this technology, and the Reserve Bank of India acknowledged that blockchain has potential to transform India’s financial markets especially because of its inherent security and ability to combat counterfeiting.

Looking forward

YES BANK is aiming to have a transparent decentralized ledger wherein the bank and its customers are aware of every block of information updated, thereby reducing discrepancies between the bank, its end users and vendors, allowing “auditability with accountability” for all. With blockchain technology helping to remove much of the friction in business transactions, it can be instrumental in transforming processes to ensure a better experience for all involved in its network.

(3.24.17) S&P Global: The week in fintech: Bringing blockchain from theory to practice

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Companies involved in blockchain projects are introducing practical implementations of the technology, and financial institutions are among those interested in how they can use distributed ledger technology.

IBM Corp. recently rolled out a service called IBM Blockchain that lets businesses build applications on its cloud with code from the Hyperledger Project, a cross-industry blockchain project. Along with IBM, some of the Hyperledger’s premier members include financial institutions like American Express Co., CME Group Inc. and JPMorgan Chase & Co. The organization is actively tracking proofs of concept in the financial industry.

More here.

(3.20.17) American Banker: Banks pick IBM blockchain to expand digital ID project in Canada

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Canadian banks will use blockchain technology to manage consumers’ digital identities.

The banks bought into the idea of managing digital identities for consumers five years ago. Initially, they focused on authentication: letting customers maintain one user name and password for multiple websites, mainly bank and government sites. The Concierge system, managed by SecureKey, was a way to simplify customers’ lives. The system stores 7 million Canadian consumers’ credentials currently with 250,000 added each month.

More here.

(3.6.17) Cointelegraph: FinTech Fund To Pour $141 mln to Aid “Financial Inclusion” in Emerging Markets

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Fintech inclusion pool Accion Frontier Inclusion Fund has announced it has raised $141 mln from major global sponsors to improve finance access in emerging markets.

The fund, based in Washington D.C. and run by Quona Capital, will use cash from companies including MasterCard, JPMorgan Chase and Accion itself to assist the three bln citizens “shut out of” the global financial system.

More here.

(3.2.17) American Banker: Banks are sold on blockchain, concerned about collaboration

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Several ideas are emerging about the adoption of blockchain in the financial services industry that are quite different than what anyone would have predicted two or three years ago.

The choices banks are making are steering financial blockchains in a direction that is far from the mysterious Satoshi Nakamoto’s conception of it, and closer to more traditional technologies out there today — a Google Docs of sorts for banks with immutability and security built in.

More here.

(2.22.17) Computer Business Review: IBM links up with asset manager to bring blockchain to private equity market

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IBM has joined up with asset manager Northern Trust Corporation to bring blockchain technology to the private equity market.

The initiative is in response to the low level of innovation behind private equity businesses, a problematic issue in the modern world in which security, efficiency and transparency are key motivators for investment.

More here.