Bitcoin and beyond: Which banks are investing in the blockchain?

Matthew Finnegan
Matthew Finnegan

Matthew Finnegan

Matthew Finnegan joined IDG UK in January 2013, having spent two years writing for tech news titles including TechEye and ChannelBiz.

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Since its inception, the bitcoin cryptocurrency has been lauded for its potential to circumvent the existing centralised banking system. See also: what is Blockchain?

Recently however, interest has also shifted to the underlying blockchain technology, and the potential it offers to banks – both in terms of payments and optimising certain processes. (Read next: Why banks are betting on the blockchain - not bitcoin - to transform the financial sector)

This has often meant striking partnerships with startups that are cropping up as interest in the technology spikes. And there is for good reason for the growing attention: according to Santander’s estimates, the technology could cut banks’ infrastructure costs by up to $20 billion each year by 2022.

Updated 8 April 2016: Major Wall Street banks including J.P. Morgan Chase and Citigroup completed a successful trial of blockchain technology for keeping track of credit-default swaps in April 2016, with a view of extending the technology out to credit-default swaps or even for tracking live trades.

There have also been moves to work collaboratively on setting up standards aroung the use of blockchain systems. Ney York-based fintech startup R3 announced back in 2015 that it had created a consortium with a number of banks to investigate blockchain use cases around securities settlement and payments. This included Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, JP Morgan, State Street, Royal Bank of Scotland and UBS.

Back in December it was announced that a further 12 had joined R3, including Banco Santander, Danske Bank, Sumitomo Mitsui Banking Corporation and Westpac.

Wired also revealed that the London Stock Exchange Group and big-name banks JP Morgan, Wells Fargo, have joined in an initiative alongside IT vendors such as IBM, Intel, and Cisco. The Open Ledger project, which is aimed at developing distributed ledger technologies which will be overseen by the Linux community.

So which financial firms are backing the blockchain? Techworld understands most are trialling it internally to various degrees, but here are some of the banks that have been publicly throwing their weight behind the technology...

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© iStock/lolloj

What is the blockchain?

The blockchain is a type of public distributed ledger that relies on a decentralised network of computers to authenticate transfers of the bitcoin cryptocurrency.

However, banks are finding other uses for the technology to help validate other types of transactions in a faster and more cost-efficient manner. For example, it could be used to process trades and bonds or property transfers, as well as supporting modernised payments networks that are not anonymous like bitcoin.

And more generally as a system of authentication it could be used for anything from smart contracts to use cases such as verifying online voting, and has even been used to validate a wedding

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© iStock Photo: franckreporter

Bitcoin passes Wall Street test

As reported in the Wall Street Journal, major banks including J.P. Morgan Chase and Citigroup have completed a successful trial of blockchain technology for keeping track of credit-default swaps in April 2016.

According to WSJ: “Banks match buyers and sellers, transmit the trades via a service run by data provider Markit Ltd. and send a record to Wall Street’s central bookkeeper, Depository Trust & Clearing Corp.” The test was run to see if blockchain could maintain a common ledger of these transactions that can be accessed by all parties in a secure way.

The Depository Trust and Clearing Corporation (DTCC) says that it will now look into extending the technology across credit-default swaps or even for tracking live trades.

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Image: Barclays

Barclays

Barclays is one of the big banks that has been experimenting with the blockchain.

Barclays partnered with the the peer-to-peer payments app Circle, which runs partly on bitcoin’s blockchain network, in April 2016. The strategic partnership shows Barclays is serious about the technology. It also legitimises the Circle offering, alongside its acquisition of an e-money licence from the UK Financial Conduct Authority, allowing the company to hold pound sterling, facilitate payments and run a currency exchange.

As part of its fintech startup accelerator programme, Barclays has also partnered with Swedish bitcoin exchange, Safello. The bank has signed a proof of concept (PoC) agreement to explore how the blockchain can be used within its operations.

Barclays has also published a paper on its corporate site highlighting the possibilities for the blockchain to “revolutionise finance”.

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© Flickr/Martin Abegglen

UBS

UBS CIO Oliver Bussmann has been a vocal advocate of the blockchain for some time.

He says that the technology will “heavily impact” financial services, and the Swiss bank has been investing to get ahead.

This has involved setting up an innovation centres in London’s startup hub, Level 39, explore how UBS can work with third parties to find use cases.

“I believe – and this is my personal view – that blockchain technology will not only change the way we do payments but it will change the whole trading and settlement topic,” Bussmann told the Wall Street Journal recently.

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Image: Santander

Santander

Julio Faura, head of innovation at Santander, recently told Techworld that the Spanish bank is working on a number of use cases for blockchain internally.

"The distributed ledger is very elegant way to solve financial problems," said Faura.

"It could mean payments that are much faster: today international payments can take days, this could take minutes or even seconds."

"We believe that [distributed ledgers are] a fundamental innovation which can help run finance ledgers and certify transactions in a much more efficient, faster, and more transparent way. That should lead to great opportunities in terms of cost cutting and also simpler and less invasive regulation and supervision."

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© Flickr/Hakan Dahlstrom

Visa

Payments provider Visa is another company which could see its business model disrupted by bitcoin and the blockchain, so is choosing to engage with the technology now.

It is one of the firms investing $30 million in blockchain development platform Chain, which is targeting the enterprise market.

Visa has also been looking at the wider potential of the blockchain, and is reportedly working on an innovation lab to investigate the technology further. It recently hired a former Google scientist to lead blockchain research teams at its San Francisco office.

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© iStock/ymgerman

Citi

Citi is another of the investors in Chain, alongside Nasdaq. But this is not the first time it has shown interest in blockchain systems. The US bank has also been developing blockchains internally to test its ‘Citicoin’ as a method of cross-border payments.

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© Flickr/Julien GONG Min

Nasdaq

The stock exchange has been working with Chain for some time, partnering with the startup for one of the most ambitious projects by a leading financial services firm so far. It plans to use the blockchain outside of a test environment later this year, speeding and simplifying the issuing and transfer of shares to privately-held companies.

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Image: Standard Chartered

Standard Chartered

British multinational bank Standard Chartered has been investigating the technology, engaging with startups on the topic.

Standard Chartered Chief Innovation Officer Anju Patwardha wrote in CIO.co.uk that the banking industry is “starting to see the many potential benefits of its underlying technology”.

“For banks, the blockchain has the potential to become a technology model for a low-cost and transparent transaction infrastructure,” Patwardha said.

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© iStock/Jay Lazarin

Goldman Sachs

Goldman Sachs has been busy investing in blockchain related technologies, and co-led a $50 milion investment round in bitcoin firm Circle this year.

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© iStock/Tim Arbaev

BBVA

Spanish lender BBVA has been keen to highlight the possibilities of the blockchain, and has invested in bitcoin firm Coinbase as it gets to grip with the tech.

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© Flickr/Aleem Yousaf

Bank of England

Regulators have become open to the wider use of blockchains too. The Bank of England highlighted the technology’s potential in a report in September, describing it as a “significant innovation” that could transform finance.

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