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Blockchain Report

Johan Nguyen [Preview]

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As the world is moving toward digitalization with widespread introduction of emerging technologies, modernization of payment has become a major theme in recent years. It is also a race among financial conglomerates in taking the lead in payment innovation and assert their position in the blockchain space. This report aims to capture all of the current movements associated with blockchain around the globe, especially in financial sectors. It also studies all of the available blockchain-based projects that aim to enhance customer experience and develop a more advanced and secure way to manage assets and wealth. Additionally, some cryptocurrency projects are introduced to compare their unique characteristics with traditional currency, thereby provide necessary information for improvement. Recommendations based on findings are drawn out to help managers adjust strategies and make better decisions for their firms.

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Table of Contents

1. How central banks react to blockchain 2. Blockchain movements around the world 3. Fintechs and projects implement blockchain 4. Promise of cryptocurrencies and what financial institutions can learn from 5. Recommendation

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Why banks need to adopt blockchain technology? A research from the consultancy Accenture reveals the top 3 reasons banking consumers are likely to leave their financial providers including (from highest to lowest):

1. Increase in costs/ no longer offering competitive prices 2. Issues/concerns over data security 3. Complaints not taken seriously

Source: Accenture For the given reasons, blockchain comes in place and offers plenty of benefits for banks and financial services to cope with the concerns:

- Reduce costs: blockchain offers a peer-to-peer network and eliminate the need of intermediaries, which add to the fact that banks are able to cut down transaction fees and improve customer satisfaction. The technology is projected to save financial institution around $15-$20 billion in infrastructure cost in 2022.

- Boost transactions: It usually takes 1-3 business days to execute a transaction and verify fund transfers, but with the advanced mechanism of blockchain, it can reduce the verification time to a few minutes or hours for banking customers.

- Improve security & data quality: Once transactions are executed on a blockchain system, it will be time-stamped and combined with other transactions on the network into a block. After that, a complete block is joined to the chain of blocks, and the link between each block is strengthened by a set of cryptographic math which makes it unbreakable. Therefore, it is impossible to add, remove or alter data when information is updated in blockchain.

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Source: Accenture According to the survey of 90 executives from financial industry services, customer-facing blockchain and data analytics are making the biggest impact today. Additionally, three years from the research data (2018), 60% of the respondents predicts data analytics still play the most crucial technology in capital markets’ operation, following by same respondent’s rate at 47% for AI-based technologies and blockchain. 1. How central banks react to blockchain As economic activities are becoming increasingly digitalized on a daily basis, trading activities are also changing in an accelerating rate. To mingle with that digital shift, central banks around the world have constantly redesigned the way people spend money as new technologies are challenging traditional banking systems. Also, the popularity of cash is declining as users switch to digital payment alternatives such as card payments. Central banks have studied and implemented new central bank digital currencies (CBDC) as a method to replace traditional money such as cash and cheques.

Sweden The decrease in need of cash remittance in the past decade has sent a signal for a new method of payment. In response to the decline, Riksbank decided to transform traditional money and launched its e-cash project, so-called e-krona. This project is hope to be a solution to bring more financial inclusion for elderly and other vulnerable groups by requiring greater coordination with local agencies. Riksbank proposed its suggestion to Swedish parliament to review the importance of central bank money in the Swedish economy. Such demand requires public access to state money and maximize the efficiency of domestic payments.

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Riksbank will run the assignment to produce solutions to test e-krona project in a test environment and intend to sign a contract with giant consultancy Accenture. The assignment is expected to be signed at the end of 2020 with possibility of maximum 7-year period extension.

Cambodia With its vision to help unbanked millions of Cambodian citizens, the National Bank of Cambodia (NBC) is experimenting the Bakong blockchain project to improve payment efficiency, promote financial inclusion and create cross-border payment channels. The programme is in pilot testing phase with local cooperation from 4 institutions: Acleda Bank, Foreign Trade Bank, Wing Specialised Bank and Vattanac Bank. In its current state, NBC has signed a memorandum of understanding with Thailand and Malaysia to promote collaboration in terms of cross-border payments.

Bahamas The Central Bank of Bahamas also introduces its state blockchain project named “Project Sand Dollar”. This project targets the improvement for financial inclusion and efficiency of domestic payment system. The blockchain-based project is a component of The Bahamian Payments System Modernisation Initiative (PSMI) which aims to strengthen national defenses against money laundering and other illicit ends. The goal of promoting universal access to digital financial services will reinforce the strategy to deliver government services through digital platforms, thereby improving tax administration.

China 2019 has witnessed numerous introductions of innovation around digital currency space, but mass adoption of digital money is still limited. However, 2020 will be a significant turning point year for Chinese blockchain market. China gets ready to launch its central-bank-issued currency (Yuan), and plans to boost a national scale for its digital Yuan through commercial banks and two giant mobile wallets of Ant Financial and Tencent.

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Ant Financial, a subsidiary of Alibaba, is a Chinese giant payment and an operator of Alipay. By the end of January 2020, they expect to launch its enterprise blockchain platform with a purpose of supporting small and micro enterprises to develop their own blockchain application at a minimal cost. The platform is also said to execute 1 billion daily transactions and can achieve up to 100,000 cross-chain information/second. The creation of the initiative is anticipated to strengthen the trust issues among cross-border remittances and trade finance.

Although established as a fintech company, Ant Financial’s current valuation trumps market capitalizations of other top financial institutions supported by the fact that more and more Chinese consumers look to fintech services to make investments, buy insurance and take out loan. If the expansion plan of the firm were successful, Ant Financial would become a leading fintech company to lay the first brick into the infrastructure of a digital economy as well as a cashless society.

Collaboration between and The second largest stock exchange Nasdaq and the investment bank Citigroup have collaborated to invest $20 million in Symbiont.io Inc - a blockchain-based company that applies blockchain technology to capital markets and is funded by blockchain advocate and billionaire Mike Novogratz. Symbiont has also developed its own blockchain platform called Assembly, in which clients can use smart contracts as well as to tokenize assets (transforming real world assets into digital contracts).

Mike Novogratz A former hedge-fund manager at Fortress Investment Group and ex-partner at Goldman Sachs. He started Galaxy Investment Partners in 2017, which describes itself as “a bridge between the crypto and institutional worlds”. Galaxy Digital focuses on cryptoassets, Initial Coin Offerings and other blockchain-run companies. More information here: Galaxy Digital

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JP Morgan Not being an outstander in the craze of digital currency wave, the biggest bank in the world JP Morgan has developed its own digital coin called JPM Coin. The JPM Coin represents United State Dollars, and each coin is pegged with $1USD. It is designed exclusively for its customers in B2B money movement activities and aims to speed up payments between firms and bond transactions. Currently, this project receives international interest from clients from Europe, the US and Japan. Back in 2017, JP Morgan Chase piloted its first scalable and peer-to-peer network based blockchain named Interbank Information Network (IIN). The purpose of IIN is to cope with the challenges of interbank information sharing and aim to reduce frictions in cross-border payments and facilitate payment process. This initiative has attracted more than 400 banks in every major market including Latin America, Asia, Europe, the Middle East and Africa. According to John – Head of Global Clearing for Treasury Services, as more banks join the ecosystem, it will dramatically decrease payment delays and boost the transaction’s speed with minimal operational expense.