Blockchain: Paving the way forward
6 November 2017
Distributed ledger technology (“DLT”) forms the backbone of blockchain, providing proof of ownership and immutable records of transactions. It offers arguably unsurpassed efficiency in generating consumer credit histories and records of insurance claims and looks set to change the traditional KYC process, with a centralised, shared, industry-wide KYC utility that provides personal identity and transactional verification. This streamlined process has already been kickstarted by three banks in Singapore – OCBC Bank, HSBC Singapore and Mitsubishi UFJ Financial Group (“MUFG”), and they are working together with the Info-communications Media Development Authority in developing a blockchain proof-of-concept customer identification system. They are still in the testing phase and are seeking to launch larger-scale trials. Cross-border trade is another key application for DLT, making use of a secure platform to exchange digital trade documents across borders more efficiently and with significantly lower costs.
MAS has been working towards the creation of a Smart Financial Centre, and there are now close to 50 locally based Fintech start-ups in the DLT space. Change Bank is a global cryptobank headquartered and licensed in Singapore, and it has recently partnered with Estonia in a blockchain ‘e-Residency’ program, where it aims to be the first decentralised crypto bank for e-Residents and leverage the program’s digital identities for AML identification purposes. A simple one-time KYC step will be the only onboarding process for users anywhere in the world, with just a basic background information request.
‘Project Ubin’ is another key collaborative initiative aimed at revolutionising inter-bank payments among the MAS, the Singapore Exchange, ten banks, six technology companies and six academic institutions. The project is already into its second phase and Accenture will be publishing a technical report on it shortly.
The obvious hurdles ahead for blockchain still continue to exist, such as regulations, legacy infrastructure and security concerns. However, with the benefits and evolving ways that blockchain can be applied to financial institutions, it looks set to become mainstream, perhaps even quicker than we imagine.