It was reported in the Financial Times last week, that Banking giant JP Morgan Chase, is leading something called the Interbank Information Network (IIN), a project that uses blockchain technology to improve the efficiency of cross-border currency transfers.
Using blockchain technology to make an existing financial services process more efficient: By now, this seems almost old-hat. Every week we hear of new stories of the blockchain being used in increasingly eclectic ways to apparently solve every problem in business – the technology is surrounded by hype and (arguably) bluster.
This project is seemingly the opposite. As the Financial Times reports, it has started “quietly producing results at scale” – something that cannot be said for almost every other blockchain product out there: they are often loud, without meaningful results, and not at scale.
The IIN, the Financial Times says, is “essentially a more efficient way for participating banks to transfer US dollars across borders and institutions”. In the current system, those waiting for currency to be transferred have to sit tight for up to two days, so that compliance issues can be seen to. In the modern world, that’s a lifetime.
The new network can do it almost instantly, the FT says. The notable thing about this project is that it is decidedly un-flashy, seems to solve a simple problem, and, perhaps most importantly, involves a number of major players.
Accenture blockchain capital markets practice head David Treat told the FT that having so many major banks involved in the project is a “big deal” and that 2018 has witnessed blockchain move from experimentation and prototypes to real life production.
Changing chains
Where things get really interesting, however, is in what Umar Farooq, JP Morgan’s head of blockchain, had to say about the project. The network, though offering significant time savings on the existing system, is not expected to offer much in the way of financial savings, he said.
This is where many people, particularly those in the financial services industry, see the true value of blockchain technology – in taking away the inefficiencies and centralised systems that we rely on, and replacing them with the seamless and decentralised world of distributed ledger technology.
But Farooq doesn’t see it that way: he thinks the future is in doing things with blockchain that we can’t do with anything else. Speaking to the FT, he said: “Blockchain is frankly a great technology, however, I’m not sure that the initial hypothesis that everyone had about saving significant sums of money is where you’ll see a lot of the new products being developed.
“It will be much more about doing things that could not be done without blockchain technology, creating new products. When you look at it purely as an expense saving mechanism, that limits the potential of the technology.”
The old school and the blockchain
The Financial Times article goes on to say that where the old school banks are looking to use blockchain technology is in “fending off competition” from fintechs that have exploited existing inefficiencies in things like cross-border payments to usurp the incumbents and find a gap in the market.
The article notes that banks have been relatively warm towards fintechs, despite their disruptive power, perhaps through an understanding that the newer challenger companies can help solve problems that require a level of nimble movement that is too difficult for the leviathan banks, with all their legacy restraints.
But one of the specific aims of the IIM system, the FT says, is to protect market share against the likes of Revolut and Transferwise. It’s interesting, then, that such an innovative technology as blockchain, and particularly one that is heralded as being so disruptive, might actually have the power to cement the position of large, incumbent companies.
The tech world moves in mysterious ways.
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