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NEW YORK, December 13th (LPC) – Brazil Itaú Unibanco completed the first loan in Latin America with a blockchain platform this month and while the transaction paves the way for banks in the region to test the ledger technology, doubts persist on its transparency.
The $ 100 million Itau trial loan, provided by Standard Chartered and Wells Fargo, used the R3 Corda Connect blockchain platform, a paperless system that allowed banks to review, review and approve the club's loan in digital way.
The adherence to emerging financial technology in Brazil began when the central bank of the country in 2017 started testing four blockchain platforms – Ethereum, Quorum, HyperLedger Fabric and Corda – in an attempt to serve a population that targets a greater use of mobile phones for remittances and mobile payments. The central bank also announced in June that it had built a blockchain platform to share data between itself and other national financial regulators such as the Brazilian Securities and Exchange Commission.
Globally, blockchain phenomena have progressed. In November, the Spanish electricity grid operator Eléctrica de España signed the world's first syndicated loan with a blockchain, a five-year € 150 million credit line (US $ 170.5 million) with BBVA, BNP Paribas and MUFG.
The Spanish BBVA in April was also the first international bank to complete an end-to-end loan with blockchain, while in Brazil this year two online payment service providers, PagSeguro and StoneCo, listed respectively in New York Stock Exchange and Nasdaq.
The blockchain loan concept is aimed at reducing transactional frauds and administrative costs, but the market remains cautious about the lack of transparency of the system, in particular between compliance requirements such as customer outlook (KYC) and anti-money laundering (AML).
LONG INCHING
It may take some time before other blockchain loans start to populate the region. The banking sector is subject to closer scrutiny by financial regulatory bodies than other sectors of the economy, making it difficult for banks to adopt new technologies.
"Perhaps the main challenge is to educate the business areas to use the technology that is coming," said Ricardo Nuno, Chief Executive Officer for the Treasury of Itaú Unibanco, adding that another challenge was the replacement of a proven technology with blockchain compatible software and hardware.
The internal credit committees of large banks also rely on paper trails that determine how deposits move.
"Technology may not be an obstacle, but more diligence is involved in an area where risk or default relationships may be higher," said Evan Koster, partner of Hogan Lovells law firm.
The prudent and prudent approach of banks to credit is another factor that prevents them from investing more in the blockchain, according to Nathan Lustig, a managing partner of Magma Partners, an investment fund for the seed phase based in Santiago, in Chile.
While banks may be slower to take blockchain technology, small-scale technology companies such as Ripple or RootStock, which is a bitcoin blockchain platform, could serve as ideal partners for risk-averse banks, Lustig said.
"Companies that provide the infrastructure for blockchain platforms can go beyond simply exchanging and creating blockchain products," said Lustig.
Itaú, Brazil's largest asset-based financial institution, entered into a partnership agreement with R3 in 2016 and in February this year, the bank agreed to partner with Ripple. Study partner Bradesco collaborated with the Japanese MUFG and the November couple signed a memorandum of understanding with Ripple to use its blockchain network for payments between Brazil and Japan.
For Itaú, the club's first funding was organized in a safe and agile manner, according to Nuno, who praised the efficiency of the technology. But he said the blockchain platform needed adjustments and "further analysis" before introducing technology into the broader banking market.
"To be more widely used it is essential that banks and other participants have more clarity on the issues," said Nuno, citing, for example, if the signed electronic contracts were enforceable in a legal dispute. (Reporting by Aaron Weinman Editing by Michelle Sierra and Chris Mangham)
