Time runs so fast: there was a time, not so long ago, banks were ready to declare war to Blockchain, as this innovative, distributed ledger technology got its start with Bitcoin and cryptocurrency in the financial sector.
But the rise of digital technologies is rapidly changing the status quo and many industries, including financial services, are adapting to it as they recognize that they’re better off collaborating on blockchain if they truly want to disrupt and transform their industry.
They know they can trust blockchain: it provides a shared version of the truth and offers certainty — something that is sorely lacking in traditional approaches to business transactions, where trading partners often can’t trust each other and have to turn to middlemen in order to get a third party which could be able to manage business relationships, regulations and complex validation processes. Through shared consensus, provenance and immutability, blockchain makes it possible for participants of a business network to trust the information, even if they don’t trust each other.
Thus, last Monday, IBM — teamed up with CLS, a foreign exchange market infrastructure firm — announced the launch of LedgerConnect, a proof of concept DLT platform designed for financial services companies aimed at applying blockchain technology to a number of areas, including know-your-customer processes, sanctions screening, collateral management, derivatives post-trade processing and reconciliation and market data.
So far, the nine financial services companies — including banks Barclays and Citi — involved in the proof of concept have selected services from a number of vendors including Baton Systems, Calypso, Copp Clark, IBM, MPhasis, OpenRisk, SynSwap and Persistent Systems.
This will be the first universal network for real-time clearing and settlement for multiple financial assets, initially focusing on cash, cross-border payment, and foreign exchange, even if banks and other institutions are now looking to apply blockchain to many of their processes, from issuing loans to settling trades in the future.
IBM’s LedgerConnect platform is hosted on a single network, which aims to be a one-stop shop for financial institutions to create blockchain applications, even if a few apps have already been made available, and these include the margin management and collateral apps of Openrisk and a portfolio reconciliation tool from Synswap. There are also other applications that are being piloted, including a KYC app that IBM developed, as well as a sanctions-screening app that was created by emphasis. Moreover, some banks already announced they are working on their own technology: this is a potential issue because there is a concern that all these different blockchains won’t work with each other. So, if one bank is using DLT created by one firm and another lender is using a different blockchain, the two institutions may not be able to transact with each other.
Also, there are concerns over the complexity and compliance status of blockchain in the financial services sector, with some trusted systems becoming so nebulous even for blockchain experts that auditing may become harder, despite the distributed ledgers in play.
But advocates of blockchain technology are not really worried about that: they are all focused on the potentiality of the project, as they are persuaded they will soon be able to speed up processes, making them more efficient and cheaper.
To tell the truth, the DLT platform is not widely available yet, but IBM says that, once the proof of concept stage has been passed successfully and regulatory approval has been secured, the platform will readily available to the whole financial services industry, as to say banks, fintech startups, and software vendors, all of which will be able to use it to deploy, share, and access services.
It is expected to be a new success for IBM, after that the second quarter of 2018 marked their third consecutive quarter of revenue growth, following five years of year-on-year revenue declines.
“Operating on a private permissioned network based on the IBM Blockchain Platform and Hyperledger Fabric technology, LedgerConnect will be designed for regulated and security-conscious enterprises and available across asset classes. Support for additional ledger technologies may be provided in the future, based on market demand and developments,” is asserted in a statement released by IBM.
Alan Marquard, CLS’ chief strategy and development officer added “Building on the success of CLSNet and leveraging the strong relationship that CLS has with the world’s leading financial institutions, LedgerConnect is uniquely positioned as a blockchain marketplace for the financial services industry, which will accelerate innovation across the ecosystem with value-added services for blockchain networks.”
And the way how IBM and CLS will build the future of financial services will come out, together with much more new ideas and strategies, of Sibos this year. This is a financial services event that will be held in Sidney from October 22–25 with nearly 200 exhibitors, conference session, high-level networking events and hundreds of speakers — such as Join Jesse Lund, Vice President, Global Blockchain Market Development, FSS, IBM Industry Platform, Jed McCaleb, Cofounder and CTO, Stellar Development Foundation, Robert Bell, President and Chairman, The KlickEx Group, Chuck Hounsell, SVP, TD Bank, Ram Komarraju, Head of Innovation and Technology Delivery, CLS.
As the theme of this year is “Enabling the digital economy”, which reflects the far-reaching transformation of banks and other financial service providers as they adjust to the realities of a digital world, IBM will be, of course, one of the protagonists.
You will IBM booth at E08, where you will be able to learn about cross-industry use cases for blockchain in financial markets and banking, and get to see some cool demos by blockchain experts.