DURBAN – South Africa's financial services industry has made a promising foray into the blockchain technology since all major commercial banks recognize the disruptive potential of technology and have initiated pilot projects for a variety of use cases .
At the center of the sector, the SA Reserve Bank recently published its report on the Khokha project – which illustrates the positive results of its process aimed at regulating high volumes of payments through the blockchain.
Blockchain is rapidly maturing in local banking and financial industries. In the last two years, huge investments have been made in this field. We are at a turning point, where we have gone beyond the initial clamor and the banks are now starting to explore some practical ways to apply technology to the needs of the real world.
Blockchain has the potential for a truly revolutionary impact in many key areas of finance. But more importantly, the adoption of blockchain in the banking sector could be the catalyst for wider use cases of technology in other sectors as well. Banks are absolutely essential to achieve this exciting intersectoral convergence.
In the field of commercial finance, for example, blockchain could fundamentally change the way banks position themselves in these ecosystems – providing a secure platform for all participants (rather than simply being a trusted intermediary and a clearing house connecting buyers and sellers) – with KOMGO's open financing platform is one of the best examples of this.
Contracts, activities and finances can be "tokenised" so that each participant uses the blockchain in his / her roles within the value chain: sellers, shippers, storage companies, shipping and logistics companies, receivers and buyers.
Everything from shipping orders, to receipts, to the landing bill can be woven into a series of smart blockchain contracts. The obligations of all the parties will be agreed in advance and once all these steps have been completed, the payment will be made automatically.
Another great example is in the area of residential real estate loans. This is a notoriously long process that can be greatly simplified and accelerated with the intelligent application of blockchain technology.
Currently, the purchase and sale of a home involves a number of interested parties: the buyer, the seller, the real estate agents, the legal department, the credit bureaus, the assessors, the municipalities , corporations, lawyers and others.
With Blockchain, we will be able to create an immutable record of ownership, allowing "trustless" commitments between the various parties. It also streamlines processes and reduces the need for paper documents. All audits and legal considerations will be added to this main record, which can not be tampered with by either party.
Despite the promise, nervousness and misunderstanding must be overcome, if this promise must become a reality, which can only be achieved through greater information sharing and industrial collaboration. But what else must happen? We believe there are four key areas that the financial sector faces, so that the positive momentum of Blockchain continues:
Standard / interoperability … while several banks manage various POCs, the industry has no collective consensus on many standards, protocols and key processes (for example, some banks lead pilots on Hyperledger, while others use Ethereum).
Downsizing … while some isolated solutions are coming to the fore, as an industry we have not yet solved the problem of how to reliably balance the transactional networks on the blockchain, to manage the volumes and the pressure of millions of transactions.
Governance, regulation and compliance … regulators in the financial services and payments sectors are grappling with how to create a regulatory framework that addresses blockchain networks and balances the need for innovation, with the need for security and protection of customers.
Back-end integration in legacy architecture … while blockchain could be a more efficient way to connect parties and facilitate transactions, the network must ultimately connect with the back-end general registers and other record-systems that banks already use.
The solution to these four challenges will require strong guidance from the Central Bank and a great deal of cooperation within the sector.
The next steps will be the transition from insular studies within each bank to sector projects that solve bigger challenges: for example, high transaction fees, slow settlement times, secure insertion of new customers in mainstream economy. and increasing liquidity in consumers and corporate markets.
There are certainly some interesting use cases that banks should consider firstly as cross-border transfers between neighboring South Africa and Namibia (where the transactions are technically forex, but both countries use the Rands). This would be simpler than real multi currency forex trades.
Blockchain certainly has a very bright future in financial services, and the way it is used in this sector could well set the tone for the adoption of ledger technology distributed in other industries.
Felix Antonysamy, Head of Business Development, Banking – Africa, Wipro Limited
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