Banks Complete First Live Transaction via a Blockchain Platform
On March 1st, Credit Suisse Group and ING Financial Services successfully executed the first live transaction of €25 million EUR (approximately $40 million CAD) in securities using the HQLAx securities lending app. This marks a huge step forward in live transactions taking place on the blockchain.
According to the press release, the banking giants transferred the legal ownership of Dutch and German government securities using HQLAX’s digital collateral records on the R3 Corda Blockchain platform. The underlying securities, however, remained within unique digital collateral record-linked custody accounts held by Credit Suisse and ING.
Unlike traditional settlements, the live transaction transferred the proprietary rights of HQLAX DCR-linked accounts containing “baskets of securities,” instead of the individual securities themselves. Credit Suisse stated that HQLAx’s R3 Corda Blockchain platform could help increase transparency, mitigate risk, and help financial companies manage capital more efficiently.
The bank’s successful live transaction occurred during the same week the Governor of the Bank of England Mark Carney, encouraged authorities to leverage blockchain technology in a variety of industries including banking and finance.
Significant progress on blockchain
Paolo Muzzarelli, the head of transaction banking products at Credit Suisse according to the press release believes it’s imperative to engage with new technology to “anticipate the future needs of our sophisticated client base.”
James Disney, Credit Suisse’s global head of software investment banking mentioned in an interview with CNBC in October 2017 that the company ran multiple experiments with blockchain technology in other parts of the business. He believes Credit Suisse has only tested the surface and the company is in its very early days when it comes to blockchain technology.
The success of this first live transaction, however, represents significant progress for both banks. The R3 Corda Blockchain platform can “improve collateral fluidity by creating a more efficient, transparent, and cost-effective marketplace for liquidity transfer,” said Romain Dumas, head of rates repo and collateral optimization at Credit Suisse.
Although both banks are currently in a testing phase, Herve Francois, a blockchain initiative lead at ING, mentioned that the application should go live by the end of 2018 in an interview with Reuters.
Banks leveraging blockchain
While Credit Suisse and ING are progressing well with blockchain technology, they are not the only financial institutions to invest in this new technology. Other banks like Goldman Sachs and the Royal Bank of Canada are also testing and adopting blockchain technology.
According to KPMG’s Fintech report, blockchain firms raised over $240 million USD ($311.6 million CAD) of venture capital funding in the first half of 2017, with a large majority coming from banks. A survey by IBM presented similar findings where the rate at which banks are adopting blockchain technology is significantly faster than anticipated. For example, 15 percent of the 200 global banks surveyed intended to roll out full-scale blockchain projects by the end of 2017.
Although Credit Suisse and ING’s first successful live transaction has significant ramifications for collateral lending, it represents the potential of blockchain to deliver tangible business value. Despite the rate of adoption and progress, consulting firm Oliver Wyman told Business Insider it will take at least ten years before blockchain will have a significant impact on the finance industry.
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