IBM launches blockchain partnership for improved cross-border payments
New collaboration between IBM and global banking leaders accelerates financial exchange and settlement across currency corridors
IBM has announced a new blockchain banking solution that will help financial institutions address the processes of universal cross-border payments, designed to reduce the settlement time and lower the cost of completing global payments for businesses and consumers.
At present, making international payments can be costly, laborious and error-prone. Transactions in different currencies can require multiple intermediaries and take days or weeks to complete.
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According to the World Bank, initiatives to modernize payments and provide financial access could improve the flow of currency and commerce, and help achieve the goal of extending financial services to one billion people by 2020.
Working in collaboration with technology partners Stellar.org and KlickEx Group, the innovative solution is intended to improve the speed in which banks both clear and settle payment transactions on a single network in near real time.
"This is the first time anyone has made blockchain work at an institutionally viable scale," said Robert Bell, Chairman of Advanced Pacific Financial Infrastructure for Inclusion (APFII) and founder of KlickEx Group.
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Today KlickEx is the largest clearing hub in the Asia Pacific region, accounting for over 60 per cent of annual retail foreign exchange transactions in key corridors.
"Through KlickEx, the Pacific has had relatively low-cost, real-time, multi-currency payments for most of the past decade, and this project was a natural next step following our work to create seamless and borderless payments across the Pacific,” Bell said.
The system, which uses a blockchain distributed ledger to give all parties access and insight into the clearing and settlement of financial transactions, is designed to augment financial flows worldwide, at the same time as allowing financial institutions to choose the settlement network of their choice for the exchange of central bank-issued digital assets.
"With the guidance of some of the world's leading financial institutions, IBM is working to explore new ways to make payment networks more efficient and transparent so that banking can happen in real-time, even in the most remote parts of the world," said Bridget van Kralingen, senior vice president of IBM Industry Platforms.
For example, in the future, this technology could make it possible for a farmer in Samoa to enter into a trade contract with a buyer in Indonesia. The blockchain would be used to record the terms of the contract, manage trade documentation, allow the farmer to put up collateral, obtain letters of credit, and finalize transaction terms with immediate payment, conducting global trade with transparency and relative ease.
Built in collaboration with Stellar.org, an open-source blockchain network that is purpose-built for the issuance and exchange of digital assets, the technology is expected to process up to 60 percent of all cross-border payments in the South Pacific's retail foreign exchange corridors including Australia, New Zealand, Fiji, Samoa and Tonga by early next year.
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"We are using blockchain technology in production to facilitate cross-border payments in multiple integrated currency corridors,” said Jed McCaleb, co-founder of Stellar.
“Currently, cross-border payments tend to take up to several days to clear. This new implementation is poised to start a profound change in the South Pacific nations,” he said.
“It could potentially change the way money is moved around the world, helping to improve existing international transactions and advancing financial inclusion in developing nations."
Each payment is immutable once recorded, and settlement instructions are provided via smart contracts on Hyperledger Fabric.
"Blockchain presents a tremendous opportunity to transform and enhance payment systems, enabling us to continue to evolve the products and services we can offer,” said Rizwan Khalfan, EVP and Chief Digital and Payments Officer, TD Bank—one of several banks across the region invited to join the network from early 2018.
Other commercial banks that have been invited to join include Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Permata, Bank Rakyat Indonesia, Kasikornbank Thailand, Mizuho Financial Group, National Australia Bank, Rizal Commercial Banking Corp. (RCBC) Philippines and Sumitomo Mitsui Financial Group.
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