What was once seen as two separate worlds unlikely to join forces, banks and cryptocurrencies are now starting to come together.
Here, we give a quick roundup of Australian banks that are using the technology that underpins many cryptocurrencies – a distributed ledger or blockchain, which records transactions.
Commonwealth Bank of Australia
In May, CIO asked Commonwealth Bank of Australia’s CIO, David Whiteing, about how it competes with non-banks that facilitate cryptocurrency and mobile payments, to which he said “the protocols [of cryptocurrecnies] we fundamentally believe are going to be the way of the future”.
CBA has partnered with Ripple Labs to transfer payments between its subsidiaries. Ripple technology allows the bank to clear and settle transactions in real time via a distributed ledger.
Ripple is a peer-to-peer, distributed payments network that supports both cryptocurrency and fiat currency. It is built on an open source Internet protocol – Ripple Transaction Protocol.
“So it’s the protocol of a distributed public and private key, moving away from a hub and spoke model of payments protocols,” Whiteing said.
The bank is also looking into enabling customers to store their loyalty coins and cryptocurrencies in their bank accounts.
Westpac has also partnered with Ripple Labs, and is trialling the technology.
Besides being able to settle and clear payments the same day, the bank is using Ripple as a low cost means to make low-value international payments.
Westpac is also investing in bitcoin wallet and exchange service, Coinbase, through fintech VC firm, Reinventure Group. Westpac is the largest investor of this firm.
“Its mission is to be the most trusted bitcoin company in the world and it is investing heavily in next generation security,” a Westpac spokesperson said.
“Reinventure’s investment will provide key insights into the use of digital currencies and associated technologies.”
Coinbase has more than 2.2 million users and 39,000 customers.
ANZ is interested in using Ripple, and is exploring potential uses cases.
The bank is interested in the benefits of using a distributed ledger such as speeding up payment transfers, but is yet to take it up until more regulatory developments pan out.
Bitcoin, in particular, has been the main topic when it comes to regulation due to past incidents of Mt. Gox that lost around $474 million worth of bitcoins and the CEO of BitInstant, Mark Karpeles, who faced money laundering charges.
This month, the Senate Economics References Committee released a report related to the Inquiry into digital currency.
It recommended a ‘wait and see’ approach before imposing any heavy regulation on cryptocurrencies, which would allow it to further develop and evolve first and then determine any risks that may arise.
The report also recommended that digital currency should be treated as money for GST purposes, reversing Australian Tax Office’s view of it as an asset, which incurs a incurs a double tax.
CIO will keep a watch on banks’ use of cryptocurrency technology.
Read: Banks’ market share in non-cash payments is projected to decline to half of the forecast 800 billion transactions by 2024, according to Capgemini