MUMBAI: In a boost to use of blockchain technology in banking, the RBI’s research arm has completed the first ever end-to-end test of the technology behind Bitcoin in a project involving regulators, banks, financial institutions and clearing houses. The RBI’s arm, Institute for Development and Research in Banking Technology (IDRBT), conducted the project using the technology behind Bitcoin in a trade application with banks and the National Payments Corporation of India (NPCI) participating too.
Blockchain is a public ledger that enables historical recording of all transactions that has occurred in a network in a way that it cannot be altered. Following the project, IDRBT last week released a white paper titled, ‘Applications of blockchain technology to banking and financial sector in India’. In a foreword to the white paper, RBI deputy governor R Gandhi said that the banking industry world over was looking at the technology, which has the potential to disrupt financial business applications. The white paper concluded that the overall proof of concept provided a good demonstration of the use-cases and helped broaden the understanding of the technology and its potential to other real-life applications.
The technology partner for the project was New York-based MonetaGo, which provided the actual platform for test cases including payments with its proprietary enhanced information payments system (EIPS) and trade finance. In an interview to TOI, Jesse Chenard, CEO, MonetaGo, said that the project was believed to be the first ever end-to-end test of blockchain using existing banking protocols, including regulators, banks, financial institutions and clearing houses.
In another pilot conducted last year, ICICI Bank demonstrated that trade finance deals can be concluded instantly as against days using the technology. Earlier this month, Yes Bank implemented a multi-nodal blockchain transaction to fully digitise vendor financing for Bajaj Electricals. Last week, Axis Bank tied up with distributed financial technology company Ripple to offer cross-border payments solution through technology innovation.
According to Chenard, it is still too early for the network effect to kick in for use of BCT. “Most bank experiments to date have been either with single institutions or with only a couple of parties to a transaction. And then again, those have been in closed sandbox environments that were deployed simply for testing purposes,” he said.
Other than the public Bitcoin, blockchain and a few other similar projects, there still haven’t been any actual productionised platforms, he added. “That is why it is one of our focuses here at MonetaGo. Until you have a platform that multiple parties can use and connect to, you can’t get a real network effect. As with any new technology, entrants rely on different platforms and methodologies and it will take some time for standards to evolve. That’s one of the reasons we are active with the Hyperledger Project.”
MonetaGo provides blockchain solutions to financial institutions and central banks. It also helps institutions identify and deploy software that integrates with existing banking systems, processes, and settlement mechanisms. “By using existing infrastructure and protocols instead of replacing them, we help our customers quickly get up-and-running without having to change their whole systems,” said Chenard.
According to Chenard, the basis of this regulator approach to BCT is largely around Know Your Customer requirements and the reporting of suspicious activity. “However, one of the interesting things for regulators when it comes to this new technology is its ability to provide greater visibility and transparency in real time into the actual transaction records than was previously possible. This innovation has the potential to bring about additional financial stability and market efficiency, which is why many regulators are taking a cautionary but optimistic approach,” he said.
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