TOKYO – Global banks such as HSBC and Mitsubishi UFJ Financial Group along with local players such as Resona Holdings and Bank of Ayudhya in Thailand are adopting blockchain technology to offer low-cost services as financial technology companies threaten their dominance.
This upheaval comes between the rapid expansion of trade and tourism entering Asia. Opportunities are ubiquitous for those offering competitive and easy-to-use services. Blockchain, the technology behind cryptocurrencies like bitcoin, often provides the answer.
A group of 12 banks, including the UK-based HSBC and the Japanese mega-bank Mizuho Bank, will change the century-old paper business of commercial finance with the adoption of blockchain. They think that their electronic system will be ready to digitize trade in Asia in about a year, according to experts it has long delayed. The blockchain-based system can reduce transaction times to 24 hours from five to 10 days, according to HSBC.
The conventional system requires the registration and verification of shipments and payments with signatures and phone calls. Couriers are often involved.
Cross-border shipments are becoming smaller and more frequent, and trade finance must be digitalized and simplified to adapt, said Takahisa Yano, head of global trade and financial receivables in Japan for HSBC.
Blockchain uses a shared digital database to verify transactions, eliminating the need to maintain paper traces or conducting third-party audits. Financial transactions can be made without going through banks or using a currency supported by the government.
Blockchain is starting to decrypt the money transfer, another basic banking service.
Japanese lenders Resona Bank, Suruga Bank and SBI Sumishin Net Bank partnered with SBI Holdings, an online financial services company based in Tokyo, to launch a low-cost smartphone-based money transfer service in the fall.
Japanese banks have been reluctant to adopt blockchain or cryptocurrency for daily transactions. The country's well-developed banking network has limited demand for these technologies and products.
Domestic transfers in Japan are currently carried out through the Zengin system, a computer array that records the movements of money entering and exiting banks. At the end of each day, Zengin regulates withdrawals and deposits on the accounts that banks hold at the Bank of Japan.
The massive system is responsible for everything from paying workers' paychecks to their bank accounts every month, paying pensions and managing credit card transactions.
But some lenders, including Resona and Suruga, are working to bypass Zengin to cope with the risk of being cut off from the process when cost-effective fintech services take hold. The value of non-routed transfers through banks in Japan rose 45% to more than 1 trillion yen ($ 9 billion) in the year to March.
The Fintech companies have been authorized to make transfers of up to 1 million yen since 2010. Their share of the transfer market, worth tens of trillions of dollars, remains small. But their rapid growth has some banks struggling for their fintech solutions.
The conventional Zengin system is reliable but expensive. Sending money between banks in Japan costs anywhere from 108 yen to 864 yen. This makes the service too expensive if the account holder wants to make a small payment, such as reimbursing a colleague who is in charge of the check at the pub. It is quite easy to repay a colleague the next day – in cash and in person. But this is not the case if the drinking session was a meeting between old college friends who are rarely seen, or an acquaintance trip after a PTA conference.
The pressure for change is even stronger when it comes to international remittances.
"Demand is expected to grow as more Japanese live and work abroad," said Junichi Kanda, a senior official of the fintech company Money Forward and a former Bank of Japan official.
Sending money from Japan to another country via banks costs at least 4,000 yen to 5,500 yen and takes up to four days. International money transfers are handled by the Society for Worldwide Interbank Financial Telecommunication or SWIFT. The service is safe, reliable and not conducive to money laundering.
But the high cost brings some people who make international remittances to bypass SWIFT. Transfers based on U.K. it helps them save money when it does. In most cases, the fintech company completes the transactions within 24 hours and charges less than 1% of the amount sent.
Sending money across borders costs even less with cryptocurrencies. Tokyo-based cryptocurrency exchange GMO Coin allows its users to send digital currency to another exchange at no cost. The service can not be used in countries that prohibit cryptocurrencies, such as China.
Some Asian banks have developed their blockchain technologies to develop money transfer services that do not rely on SWIFT.
The Bank of Ayudhya, Thailand's fifth largest lender, led in May a successful pilot project for international real-time remittances in cooperation with the Japanese MUFG Bank and the Standard Chartered Bank Singapore, the multinational financial services company.
The test followed a similar initiative in which the Thai bank used blockchain technology to transfer money between an oil company in Thailand and its trading partner in Laos.
Blockchain "could make cross-border transactions faster and cheaper," analysts at Moody & # 39; s Investors Service said. But "it would leave the banks less room to charge commissions and commissions on foreign currency transactions in the face of increasing competitive pressures".
Other industries are far ahead of the blockchain technology. Royal Dutch Shell, for example, is working with other energy companies to develop a digital platform for energy trading. Some think that the platform could be expanded to cover other transactions, such as those for the construction and maintenance of power plants.
A.P. Moller-Maersk, the largest container shipping company in the world, has created an electronic ledger that records details such as cargo content and position, as well as legal documentation for cross-border movements.
Digital platforms such as these could reduce the need for traditional commercial financial services.
Banks have no choice but to embrace blockchain technology if they want to stay in business, say Moody analysts.