Enterprise blockchain in the banking and financial services has crossed the chasm in 2019. We saw a plethora of banking and payments giants coming out with various initiatives, from payment networks and stablecoins to bonds and private equity blockchain protocols. Last week was no exception as J.P. Morgan, HSBC and Visa came forward announcing key blockchain developments.
J.P. Morgan is using blockchain to optimize floorplan lending audits and to manage collateral
There is a lot happening at the large corporation J.P. Morgan, which has developed its own private blockchain called Quorum. Quorum, in fact, is not a completely new blockchain; instead, they used a copy of public Ethereum protocol and added several important services to make it suitable for financial enterprise. The final blockchain implementation was then open-sourced and made available for anybody to download and use. J.P. Morgan are using Quorum successfully for various use-cases, from issuing a stablecoin to launching its Interbank Information Network (IIN)
Last week it was revealed that J.P. Morgan has filed for a patent that aims to optimize the usually difficult process of floorplan lending audits. For that purpose, they are launching a blockchain network that will consist of Original Equipment Manufacturers (OEMs), Chase Auto’s existing network of car dealerships, and internal banking departments. This blockchain network, combined with a vehicle telematics solution, will give complete visibility where the cars are at any given moment. It’s still not clear how the data will be sent to the blockchain from the car, as we know that the car manufacturers are highly resistant to giving out such valuable data. Some of them might be willing to sell that type of data, but that’s not sustainable business planning. A possible solution will be to leverage an Internet-of-Things (IoT) device that can be plugged into the car ports.
Another use case for blockchain in financial services is utilizing custodial smart contracts for optimizing the management of collateral in derivatives margin transactions. Currently there are a lot of inefficiencies around lock-in excessive cash and non-cash capital that should meet the margin contracts. Using Excel spreadsheets, legacy infrastructure and sharing the data among multiple clearinghouses does not help with assets visibility and execution times. J.P. Morgan, partnering with Baton Systems, is leveraging the distributed nature of blockchain and building on the automation capabilities of smart contracts for providing real-time visibility, full audit history and near real-time workflow execution.
HSBC will use blockchain to move $20 billion worth of assets
Using blockchain for back-office operations is one of the most common use scenarios as it provides an immutable ledger on top of smart contract automation. The blockchain platform developed by HSBC will re-create the existing paper ledgers into fully traceable and real-time auditable on-chain transactions. HSBC, which is the seventh-largest bank in the world, is projecting that the global value of private placements will be at $7.7 trillion by 2022, which is a jump of 60 percent from five years earlier. Their move into the blockchain space to ramp up their technology stack was expected as there are already similar successful solutions by Northern Trust and their private equity blockchain platform, and Banco Santander (also build on Ethereum) with its $20M blockchain bond.
Visa ramps up its data privacy solutions with blockchain
Visa, the world’s second-largest card payment network (right behind China’s UnionPay), has just announced a new data privacy research approach that leverages Trusted Execution Environments (TTE) and shared ledgers. LucidiTEE is a system for policy-compliant fair computation build on the same principals as TTEs but without the shortcomings. Currently, most of the personal financial transactions are stored in raw data format and not safe-guarded by software but by data policy rules. This makes those personal transactions vulnerable to data breaches, hacks and simple misuse. LucidiTEE’s approach is to store the computations done in each processor’s enclave without actually storing inputs, outputs or state, thus being able to scale as the operations grow. The proposed blockchain solution can be used for sharing personal private data at scale, conducting federated machine learning operations or finding intersections between privacy-based datasets.
With the recent developments happening in the financial services space we can see the clear trend of enterprises warming up and embracing blockchain technology. Together with the maturity of the underlying blockchain technology, enterprises will move the scope of using blockchain from back-office to mid-office and front-office operations. Complex and time-consuming workflows like post-trade processing, settling of complex securities repurchase agreements and lending transactions are done faster and cheaper with greater inventory visibility than through the current legacy systems.