Standard Bank builds international payments blockchain

Richard de Roos Standard BankStandard Bank’s hyperledger fabric-hosted foreign exchange payments and settlement system is expected to go live in the first half of 2019, aiming to significantly increase the international trades and speed up foreign exchange payments, according to Richard de Roos, head of foreign exchange for Standard Bank Group

As the use of blockchain increases, companies and countries are aiming to develop effective cross border payments and trade finance blockchains. Beyond the chequered performance of cryptocurrencies, however, distributed ledger technology has not yet been successfully harnessed into easy-to-use banking applications – despite the broad recognition of the potential of this technology to significantly disrupt the sector.

Standard Bank clients conducting foreign exchange for payments in Africa currently face several challenges in meeting regulatory reporting burdens as well as accessing liquidity.

Completing a foreign exchange transaction for offshore payments typically involves a three-step journey. The first mile requires originating the instruction, accessing an exchange rate, correctly identifying the beneficiary details, complying with regulation and then accessing available funds. In the second-mile payment instructions are remitted to the beneficiary bank. In the third and final mile, the receiver is paid by the beneficiary.

“The majority of client trades fail in the first mile of payment. That is, at the very beginning,” said de Roos.

If Standard Bank could develop a limited blockchain that reduced failure in the first mile of foreign exchange payments and settlement, then simply hand the transaction over to SWIFT, “We could actually offer clients a fully integrated end-to-end blockchain solution that would dramatically reduce the incidence of trade failure while also increasing regulatory transparency and improving the visibility of liquidity,” according to de Roos.

Standard Bank is also working with its major shareholder and global banking partner, the Industrial and Commercial Bank of China (ICBC), enabling Standard Bank to extend this private permission-based ecosystem into China. This is expected to ensure a seamless trackable payment experience for all Standard Bank clients – covering the African continent and augmented with Asian interoperability.

As such, initially, this much smaller private permission-based network will only include Standard Bank and Stanbic Bank partner banks, clients and third parties directly involved in trades, and SWIFT. “We have also decided to include our foreign currency trading app, SHYFT, which provides access to a host of payment distribution partners and e-commerce platforms,” noted de Roos. Since ICBC is also crucial to most Standard Bank trades involving Africa and China, and Standard Bank and ICBC have built their platforms on hyperledger, the banks’ private permission blockchain trade solutions are entirely interoperable. Moreover, with the whole system being on the cloud, “Standard Bank working together with ICBC means that our private permission blockchain foreign exchange payments and settlement solution provides clients potential access to similar ecosystems around the world,” he added.

The visible and private permission-based nature of the ecosystem also means that the platform cannot, for example, be used for money laundering. In other words, Standard Bank’s foreign exchange payments and settlement blockchain does not operate like a cryptocurrency, accessible to all. Instead, since this is not a public blockchain, “it can’t be used for anything other than legitimate, regulated and entirely transparent transactions involving Standard Bank clients,” added de Roos.

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