DM - Bank + Blockchain Love Affair (DarcMatter)

The Emergence of the Bank & Blockchain Love Affair

In 2018, the Bank+Blockchain relationship was solidified…was this the start of true love?!

Since the inception of blockchain and its core thesis of “decentralization,” the general sentiment from the banking industry was quite skeptical. However, in 2018, in the classic case of a burgeoning love-hate relationship, everything has been turned on its head. Nowadays, we hear the news daily regarding a different bank’s participation or partnership with blockchain companies, which is indicative of the significant investment and human capital being dedicated to exploring blockchain innovations internally. Why now? For some, it seems to be about simply trying to keep up with current and most popular technological trends, for core believers it’s about the impact the technology can have on the bottom line, and for the rest, it’s about not being the last kid invited to the dance.

To understand the reasoning behind banking’s tumultuous relationship with blockchain technology, it’s important to understand the opportunities it can provide. Given the evident shift of consumers to the digital era, it has become significantly more important for banks to keep up with the times and stay relevant. Many times, this is done by offering comprehensive solutions to clients, in an easily accessible and secure manner. Blockchain presents a critical opportunity for banks to become a participant in a global infrastructure created to provide truly secure and integrated solutions through the usage of digital assets.

Providing a solution that disintermediates via blockchain enables banks to achieve real disintermediation and streamline the entire financial lifecycle for consumers. This also has the potential to make services cheaper for consumers (decreasing fees) and reduces costs for daily operational activities for the banks themselves. It also provides banks with an opportunity to highly curate and target specific solutions for individual consumers. As an example, there are many consulting companies and industry analysts that see blockchain as a possible alternative to the SWIFT system in the near future. The foresight for blockchain’s use and integration as a potential replacement for SWIFT systems, is likely the primary reason behind why SWIFT has launched its own payment blockchain system in December 2018, which solves problems with payment delays due to banking errors.

Due to decentralization and an accessible ledger system, blockchain enables banks to significantly reduce the amount of paperwork required for daily operations, increase transaction speed, and heighten security. Creation of customer identification systems using distributed ledger technology (DLT) can help banks eliminate paperwork duplication and allow for a one-time and global identification of users. This system also would have the potential to securely store personal data, while giving permissioned access to other banks or third parties required to complete an activity or transaction on behalf of a specific user. Banks remain constant targets of attack and are vulnerable to hacker and phishing attacks, particularly because of the degree of sensitive information shared consistently. As a result of this ever-present vulnerability, banks need technology that can eliminate fraud and provide an improved and decentralized approach to security. Blockchain and cryptography protection, are direct solutions to this issue for the banking industry.

Taking into consideration all of these potential benefits, it is clear why there is heightened interest from financial institutions to invest significant capital in blockchain technologies and underlying companies. In November, CLSNet, automated bilateral payment netting service for over 120 currencies operating on a DLT platform, was launched. The service is based on Hyperledger Fabric technology and was developed jointly with IBM. It provides stable cash flows, improves the efficiency of payment transactions and automates various processes. Banking industry giants such as Bank of America, Goldman Sachs, Citibank, Morgan Stanley, JPMorgan Chase and Bank of China are among the first clients.

JPMorgan Chase has also applied for a patent to facilitate payments between banks using blockchain, being coded on Ethereum, a currency the firm has explicitly criticized in the past.  There’s something to be said for keeping a couple that was meant to be together….a part for too long! The financial giant went even further in February 2019 and has announced its own digital currency coined JPM Coin, which simplifies the process of bank transfers, significantly reducing transaction processing time. There should be more to come on this front in upcoming months. Like JPMorgan Chase, MasterCard did not initially approve of blockchain and the underlying cryptocurrency revolution. However, for both industry incumbents, that stance has clearly changed. According to iPR Daily, as of September 2018, 80 applications for blockchain-related patents were received from MasterCard alone.

Goldman Sachs is also actively involved in research and support of blockchain technologies. It has invested in a cryptocurrency project called Circle that is considered to be Goldman Sachs’ testing ground. It offers users the ability to store and transfer digital money using its own payment system. The total number of proposed cryptocurrencies for this system has reached 11 thus far. GS has also hedged their bets with other investments in blockchain startups including enterprise blockchain startup Axoni and blockchain payments startup Veem.

Another American bank, Bank of America (BoA), plans to patent a blockchain-based system to improve cash handling. It was published by the U.S. Patent and Trademark Office (USPTO) on December 25th, 2018. According to the patent, Bank of America could use blockchain tech to verify and track ATM cash transactions and improve ATM performance, namely launch ATM powered by a blockchain ledger, which could have a huge impact on the industry for consumers. It is worth noting that Bank of America is one of the most successful investors in blockchain research in the United States along with such giants as Walmart and IBM. Over the years, the company has applied for dozens of patents, many of which involved the cryptocurrency issues.

Perhaps the most evident example of embracing blockchain from the once skeptical banking industry, comes from the People’s Bank of China, responsible for over 44 patent applications in the field of blockchain technologies, as of the summer of 2018. In autumn, the main bank of China reported on the creation of the Guangdong-Hong Kong-Macao Great Bay Area Trade Finance Blockchain, a blockchain trade and financial platform. Since this new blockchain alliance in Greater Bay Area was established, 54 companies from Guangdong, Hong Kong and Macao, including Alibaba’s Ali Health and CASICloud, have joined. The alliance covers many areas of blockchain, such as technology, funds, incubation and trading. The newly-established alliance will be developing four platforms, including the blockchain general development platform, blockchain innovative and entrepreneurial platform, blockchain technology innovation platform and blockchain industry service platform, as well as a blockchain-focused fund.  Moreover, China’s self-regulatory bank organization the China Banking Association (CBA) announced the launch of financial interbank trading blockchain platform on the 29th of December, 2018. The platform seeks to “improve efficiency and ensure transaction security.” Already, 10 banks have passed several tests. Furthermore, among the sponsors for the platform’s construction is the United Nations Development Bank.

European banks are also rushing in to be the most eligible candidate. Spanish BBVA Bank issued the first blockchain loan in the world in spring 2018, using Ethereum. Shortly thereafter, BBVA, Japanese bank MUFG and French BNP Paribas, issued a syndicate loan of $150 million to the Spanish company Red Electrica. A private blockchain was used to complete this activity. BBVA and Santander have also joined the International Association of Blockchain Applications (IATBA) in November 2018. IATBA is a partnership of 27 EU countries, including the UK, France, Germany, Sweden, the Netherlands and Ireland, who are working to create a European blockchain infrastructure that will support the provision of international digital public services with the highest standards of security and privacy.

The British financial giant Barclays announced a partnership with blockchain startup Crowdz at the end of August 2018 in order to integrate Ethereum blockchain support into Barclaycard. With the help of distributed registry technology, it is planned to speed up transactions of plastic card users. A month prior, Barclays filed two patent applications relating to the transfer of digital currency and blockchain data storage, both published by USPTO.

One of the more outspoken nations to embrace blockchain and cryptocurrencies is Switzerland, who’s banks offer direct crypto-exchange capabilities for FIAT/crypto currencies. The Swiss Falcon Private Bank has supported direct transfers and storage of selected cryptocurrencies. The bank announced that both private and institutional investors can directly convert cryptocurrency into their own Falcon wallets now and also convert it into paper money. For starters, Falcon supports only four major cryptocurrencies: Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH) and Litecoin (LTC). Swiss banks are also active researchers of blockchain technology. A year ago, UBS and partner banks announced the start of the Batavia platform which uses blockchain technology designed to streamline financial trading processes, as reported by Though this project was halted, it appears it has merely shifted focus, and now exists as We.Trade, with the two other banks behind the Batavia project, namely the Austrian Erste Group and the Spanish CaixaBank, joining forces with UBS. is a blockchain-based trade financing platform whose shareholders include major European banks.

However, in the midst of all potential benefits that blockchain technology presents to banks, it simultaneously represents an existential crisis. Disintermediation has the potential to trickle into the foundational roles of banks and require that financial institutions evolve with the times and directly serve the ultimate benefit of their clients. Which may not be the easiest compromise to make this relationship stand the test of time, but, nothing worth having, comes easy right?

As this love story continues to unfold, it has proved a few things certain. While skepticism, uncertainty, and the general not -so- flattering remarks for blockchain were, at one time, rampant throughout the banking industry, the allure of the technology and the benefits it can provide, prevailed. The attraction to these key benefits, was far too strong for industry participants (global banking giants to local firms alike), to ignore, creating a shift in strategy, that aims to be responsible for the birth of a new era in fintech solutions, centered around blockchain for banking. As many love stories go, it may end in drama with only one side as the beneficiary. We’ll hope for a fairy-tale ending though.