How Canadian Banks Use Blockchain
As technology continues to change the fiscal world and challenge the ways in which the average consumer understands currency, banks have been undergoing pressure to keep up with the changing tides.
Blockchain technology, in particular, is one opportunity in emerging technology that is simply too big for banks to ignore. The crypto competition is fueled by the fact that utilizing blockchain allows for a solution to many of the flaws that exist in the current banking system.
As such, major banks are now attempting to seize the opportunities that blockchain technology has provided in order to keep up with an economy that is increasingly beginning to favor cryptocurrencies.
‘Unlocking The Potential’ of Blockchain
Banks across Canada are investigating new and innovative uses for blockchain, and seek to understand the full extent of the technology’s potential.
One such example comes from the Bank of Montreal (BMO), which is focused on leveraging technological innovation to benefit their clients globally.
“BMO’s objective is to deliver simple and efficient solutions founded on technology that delivers cost, efficiency and risk benefits to our clients and the bank.”
Jeffrey Shell, Managing Director and Head of Global Trade & Banking
Shell’s statement came at a pivotal time in the bank’s involvement with blockchain technology, as it accompanied the 2016 announcement of BMO becoming an official member of the Batavia project, an IBM and UBS-led initiative to launch a platform that operates through the IBM blockchain.
The initiative’s goal is to create a system, that multiple banks participate in, that both lowers cost and increases the transparency of global trade by taking advantage of the open nature of a platform that runs on blockchain.
In July 2017, Toronto-Dominion Bank (TD) echoed this sentiment when it made one of its biggest public moves so far in regards to blockchain by joining the Chamber of Digital Commerce.
The Chamber of Digital Commerce is one of the biggest promoters of blockchain, and TD’s support means potential for further growth in the field. Chris Owen, the VP of Enterprise Shared Platforms at TD, made an official statement about their desire to ‘unlock the potential’ that blockchain technology holds through their new partnership with the Chamber of Digital Commerce.
Each of Canada’s major banks are also experimenting with blockchain, at least partially, in order to facilitate easier global trade.
The Royal Bank of Canada (RBC), for instance, recently announced its involvement with blockchain technology, experimenting with their US-Canada payments business. The technology itself is being developed from RBC’s in-house blockchain technology centre, located in Toronto.
“Martin Wildberger, RBC’s executive vice president for innovation and technology, said use of distributed ledger technology, or DLT, would improve the speed of payments, reduce complexity and lower costs.” (Reuters)
This news came after similar reports last year In 2016, when Reuters reported that the
Canadian Imperial Bank of Commerce (CIBC) joined a small roster of banks that held the title of being able to complete successful blockchain transfers between countries.
A Shared Open Platform
Further, blockchain has the potential to become a shared, open platform to help with data security and transparency. Scotiabank, for instance, recently partnered with AlphaPoint to investigate the use of a Distributed Ledger – a constantly updated database shared between multiple entities – throughout the bank’s services.
Additionally, Scotiabank made headlines in July 2017 when they joined the Enterprise Ethereum Alliance, a group which seeks to promote Ethereum as the basis for smart contracts.
The impact of distributed ledger and smart contract innovations at scale remains to be seen, but it is clear that they could have a major effect on the ways in which banks carry out their business, and utilizing an open platform could create a more transparent system for public audit.
Joint Efforts Between the Big Five
Due to the relatively small size of the Canadian financial system, Canadian banks are incentivized to share their findings and work together, which lends perfectly to blockchain development.
A perfect example is “Know Your Customer” (KYC) legal obligation requiring banks to keep track of how payments are moved and mandates that banks verify the identity of people who seek to open bank accounts.
Prior to blockchain, banks had to conduct KYC on their own, which created unnecessary costs for banks and lengthy processing time for their clients. A centralized system that conducts KYC checks would benefit all banks since, in theory, this would mean that once someone is verified with one bank, they would be verified with every bank that uses the shared network.
In an attempt to overcome KYC hurdles, among others, Canada’s biggest banks have come together to help launch a service with a provider known as SecureKey.
The new SecureKey system will use blockchain technology to create a public ledger where KYC information can be shared between banks, leading to time and cost efficiencies that hopefully will be passed onto the customer.
Ultimately, as Canada’s major banks continue to explore ways in which this disruptive new tech could solve pre-existing issues within the industry, it seems clear that blockchain technology will play a key role in the future of the country’s largest financial institutions.
Image credit: TD Canada Trust
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