Recently, a consortium of banks in Asia – Singapore-headquartered OCBC Bank, UK-headquartered HSBC Bank and Japan-headquartered Mitsubishi UFJ Financial Group (MUFG) – collaborated with one of Singapore’s government agencies, the Infocomm Media Development Authority (IMDA), to successfully launch Southeast Asia’s first Know-Your-Customer (KYC) blockchain.
Interactions between the stakeholders involved were key to the project’s success as shared by Mr. Altona Widjaja, Vice President, Fintech and Innovation Group, OCBC Bank,
“The shared KYC Platform is a joint project between OCBC Bank, HSBC and MUFG, together with the Infocomm Media Development Authority (IMDA). Together, the partners defined the vision of the project, identified the objectives of the proof-of-concept and designed the blockchain architecture. Each partner developed and tested the functionality, scalability and security of the platform, and refined the proof-of-concept (POC) to be compatible with the other banks’ operational objectives.”
This move in Asia has showcased the forward-looking vision of the region. Whilst other international players were downsizing or exiting Asia-Pacific (APAC) after the global financial crisis, most regional and local players moved instead to grab more market share.
Today, the Top 5 biggest global banks are all Asian; managing almost US$15 trillion between them.
However, APAC’s banks face increasing competition as FinTech startups challenge their successes, prompting a rethink in strategic focus, business models, and the need for developing competitive advantages in digital technologies.
Hence the interest from banks into blockchain technology – a digitized, decentralized and public ledger of all transactions. The ledger grows constantly via ‘completed’ blocks (the most recent transactions) which are recorded and added to in chronological order. Market participants are now able to keep track of digital transactions without central recordkeeping because each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.
Recognising the potential of blockchain technology to impact their businesses, Asian companies have already run over 30 different blockchain tests since December 2015. And as the graphic below shows, banks in Asia have been leading the experimentation process, collaborating with startups, SMEs and government institutions.
Breakdown of financial players involved in blockchain experimentation (Source : Innovation is Everywhere)
This latest experiment in blockchain by the consortium uses the Distributed Ledger Technology to move KYC from being a largely manual and paper-based process – that can take weeks – to become a faster means of recording structured customer information. It can then be accessed and shared across a distributed network amongst banks with accuracy, efficiency and most importantly, security. These improvements are then able to help banks combat anti-money laundering (AML) and the financing of terrorism (CFT).
However the project was not without its issues as shared by Mr Widjaja,
“The security, confidentiality of information and resilience of the platform are key challenges, in addition to attracting committed partners for the network effect of the use of blockchain to be realised.”
An illustration of the blockchain KYC process (Source : OCBC Bank)
The success of the test also marks another development in blockchain for the banks involved:
- Startup testing, MUFG – the world’s 5th largest bank with US$2.59 trillion in assets – had worked with enterprise blockchain startup Chain to successfully pilot a project exploring digital promissory notes in April 2016.
- Co-creation with SMEs, OCBC bank was the first Southeast Asian bank to make local and cross-border inter-bank fund transfer between itself and its subsidiaries, OCBC Malaysia and Bank of Singapore, using a payment blockchain solution jointly designed by the bank and Singapore-based banking payment solutions company BCS Information Systems.
- Inter-bank collaboration, HSBC had previously trialled a blockchain-based mortgage valuation sharing solution with Bank of China (Hong Kong) in October 2016.
Experimenting fast has been an important factor assisting the stakeholders involved, with the prototype’s performance tested in just 4 months between February and May 2017 for its functionality, scalability and security. Remaining stable even with a high volume of information flow, it was resistant to tampering by third parties and maintained confidentiality by permitting access to the ledger’s information only with legitimate authentication.
As shared by Mr Pranav Seth, Head of E-Business, Business Transformation and the Fintech and Innovation Group at OCBC Bank,
“This partnership fans the spirit of cooperation among competitors as well as regulatory and government bodies, and we hope this will help foster and inspire more of such collaborative innovation initiatives. Our pioneering efforts have resulted in a KYC process that will not only enhance customer convenience, but will improve the industry’s operating efficiencies while reducing financial fraud and crime.”
Overall, the experiment has emphasised on the pioneering spirit of APAC’s financial players to adopt and advance potentially disruptive technologies such as blockchain. It has also showcased the value of collaborative ecosystems in accelerating tests whilst delivering long-term customer value for business growth.
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