IBM has announced a new blockchain banking solution to help financial institutions address the processes of universal cross-border payments, designed to reduce the settlement time and lower the cost of completing global payments for businesses and consumers.
Using IBM Blockchain, and in collaboration with technology partners Stellar.org and KlickEx Group, the solution is intended to improve the speed in which banks both clear and settle payment transactions on a single network in near real time.
Today, making international payments can be costly, laborious and error-prone.
Transactions in different currencies can require multiple intermediaries and take days or weeks to complete.
According to the World Bank, initiatives to modernise payments and provide financial access could improve the flow of currency and commerce, and help achieve the goal of extending financial services to one billion people by 2020.
The solution is already processing live transactions in 12 currency corridors across the Pacific Islands and Australia, New Zealand and the United Kingdom.
Using a blockchain distributed ledger, all appropriate parties have access and insight into the clearing and settlement of financial transactions.
It is designed to augment financial flows worldwide, for all payment types and values, and allows financial institutions to choose the settlement network of their choice for the exchange of central bank-issued digital assets.
For example, in the future, the new IBM network could make it possible for a farmer in Samoa to enter into a trade contract with a buyer in Indonesia.
The blockchain would be used to record the terms of the contract, manage trade documentation, allow the farmer to put up collateral, obtain letters of credit, and finalise transaction terms with immediate payment, conducting global trade with transparency and relative ease.
IBM has convened an initial group of diverse banking leaders as part of the development and deployment process, including Banco Bilbao Vizcaya Argentaria, Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Permata, Bank Rakyat Indonesia, Kasikornbank Thailand, Mizuho Financial Group, National Australia Bank, Rizal Commercial Banking Corp. (RCBC) Philippines, Sumitomo Mitsui Financial Group, TD Bank, Wizdraw (HK) of WorldCom Finance, and other financial institutions.
“With the guidance of some of the world’s leading financial institutions, IBM is working to explore new ways to make payment networks more efficient and transparent so that banking can happen in real-time, even in the most remote parts of the world,” says Bridget van Kralingen, IBM Industry Platforms senior vice president.
In keeping with IBM's commitment to open source, the solution is run from the IBM Blockchain Platform on Hyperledger Fabric and was built in collaboration with Stellar.org, a non-profit organisation and associate member of Hyperledger, and KlickEx Group, a regional financial services company in the Pacific region.
Stellar is an open-source blockchain network that is purpose-built for the issuance and exchange of digital assets.
Digital assets are issued on the Stellar network as a foreign exchange bridge to allow for near real time settlement.
KlickEx Group serves as the founding financial institution for the region, servicing banks, retail clients and consumers using this new network.
IBM will continue to advance the solution with the goal of expanding capabilities in order to support central bank-issued digital currencies, securities, bonds and structured financial assets.
IBM Blockchain provides high performance orchestration to move payments among parties. Each payment is immutable once recorded, and settlement instructions are provided via smart contracts on Hyperledger Fabric.
Initially, Stellar will provide the network and digital asset to facilitate the settlement of transactions cleared on Hyperledger.
"This new innovation and collaboration represents a significant milestone for Stellar as well as the financial technology industry as a whole," says Jed McCaleb, co-founder of Stellar.
The network is currently in use by Advanced Pacific Financial Infrastructure for Inclusion (APFII) members, a public-private partnership initially funded by the United Nations and SWIFT.
It is expected to process up to 60% of all cross-border payments in the South Pacific's retail foreign exchange corridors including Australia, New Zealand, Fiji, Samoa and Tonga by early next year.
Commercial banks such as Banco Bilbao Vizcaya Argentaria, Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Permata, Bank Rakyat Indonesia, Kasikornbank Thailand, Mizuho Financial Group, National Australia Bank, Rizal Commercial Banking Corp. (RCBC) Philippines, Sumitomo Mitsui Financial Group, TD Bank, and Wizdraw (HK) of WorldCom Finance will be invited to join the network and help it expand in different parts of the world beginning in 2018.
“This is the first time anyone has made blockchain work at an institutionally viable scale,” says Robert Bell, APFII chairman and KlickEx Group founder.
“Through KlickEx, the Pacific has had relatively low-cost, real-time, multi-currency payments for most of the past decade, and this project was a natural next step following our work to create seamless and borderless payments across the Pacific.”