Should Facebook worry about rival bank blockchains?
Facebook grabbed the spotlight this week with the announcement of its Libra cryptocurrency initiative, and its list of high-profile supporters suggests that it's the only game in town. But banks have their own projects in the works.
Infosys Finacle, an open-platform provider pushing banks to modernize systems through APIs, is much further along in its project. In late 2017, two Finacle clients — ICICI Bank and Emirates NBD — were seeking a way to utilize blockchain as a way to make the trade process more efficient. By mid-2018, the banks were using the blockchain for trade and cross-border payments. Over time, 15 other banks joined in to utilize the blockchain for those services.
At the same time, a consortium of seven banks in the Asia-Pacific region — ICICI Bank, Axis Bank, Induslnd Bank, RBL Bank, Yes Bank, Kotak Bank and South India Bank — formed to support India Trade Connect. For these banks, the use case for domestic trade stood out, handling $2.45 trillion in trade in a way that supported the broader "Digital India" campaign for payments.
"Use of the blockchain has evolved into additional services and that is how the payments piece came into play," said Carl Robinson, vice president of North America for Finacle, which has its U.S. office in the Dallas area.
"After the banks got the traditional import-export trade piece down, they felt they could use the distributed ledger aspects to get into other payments as well," Robinson said. "And they did that within the member banks."
Finacle's blockchain network, also called Trade Connect, now supports B2B and C2B payments in a scenario that sets up the banks to grow the service and adoption.
This puts Finacle's project well ahead of Libra, the Facebook-led initiative that plans to go live in 2020 with the support of Visa, Mastercard, PayPal, Stripe and others. Facebook has discussed the idea of using Libra for payments in its Messenger and WhatsApp platforms, or as a standalone app, but none of these use cases are live.
Blockchain advancements of the past few years tend to linger at the conceptual stage, said Gil Luria, director of research for equity capital markets at D.A. Davidson & Co.
"While the technology is promising, we have yet to see any scalable commercial applications using blockchain," Luria said. "The recent introduction of a new approach to blockchain by Facebook has the potential to create a breakthrough, but that project is in its infancy as well."
Finacle is hoping its work in the Asia-Pacific region carries over to North America, where the tendency has been to take a cautious approach to blockchain. This is especially true in Canada, where a years-long Project Jasper blockchain research initiative resulted in an overall "take it slow" recommendation from financial and payments leaders in that country.
In the meantime, JPMorgan moved the needle slightly earlier this year with its JPM Coin blockchain service for its massive $6 trillion in wholesale banking transactions daily. Just this week, the MoneyGram transfer service partnered with blockchain provider Ripple to help speed up and take friction out of the foreign exchange aspect of moving money across borders.
"The ability to innovate is a little easier in the APAC region because there is a lot of mobile, and blockchain is just more natural coming out of that part of the world," Robinson said. "Over here, in North America, there is a more conservative take, and you can't blame them for thinking that way."
Still, some obvious use cases are working in other parts of the world and Finacle can see momentum gaining in which financial institutions and fintech companies are "determined to find the use cases and an approach that works so banks can step in and get results out of it," he added.
Despite all of the interest being stirred by blockchain advancements in payments and security, the actual operation of a blockchain distributed ledger does not veer far from the main purpose of current legacy network operations.
Cross-border payments handled through Trade Connect or other blockchain networks would not look much different from those made through the correspondent bank network, except they would be faster, would include more shared information to more parties and be more secure at the same time.
"It's really someone sitting at a computer and seeing a change in position on the ledger based on a request or submission of payments, the balance changes accordingly and is tied back to the transaction," Robinson said. "It's pretty uneventful and not really sexy on the surface, but it gets the job done."