The Indian financial sector is evaluating blockchain, the underlying technology powering bit coins, and some are even considering deploying certain worloads on blockchain..
Blockchain or a digitized ledger is a distributed database that stores the information of each transaction that happens over a network in a secure and tamper proof manner. Blockchain has been lauded as a revolutionary technology that will transform the way financial institutions will transact in the future..
According to a recent survey by Pegasystems, Cognizant and Marketforce, covering 500 global banks and insurance officials revealed that 22 per cent of the respondents expect their customers to hold most of their financial assets in blockchain wallets within five years to 55 per cent in 10 years an 71 per cent in 15 years.
In India too bankers are aware of the potential the technology holds.“The future of blockchain technology looks to be quite promising in India, especially in the financial sector, There is a vast scope for blockchain to flourish and the possibilities will depend on how companies capitalize on this innovative and disruptive technology,” says Anup Purohit, CIO of YES Bank. He revealed that Yes bank was exploring the potential of blockchain and distributed ledgers quite seriously and it is taking various measures to identify and invest in these technologies.
The bank is currently in talks with technology providers and vendors to create solutions to tap into the potential of blockchain, and is also working with industry bodies such as NASSCOM for these solutions.
KNC Nair, CIO of Muthoot Group believes that distributed ledger architecture offered by the blockchain will bring in huge cost saving and better data security. He says that it is important as Muthoot was looking forward to transform from being a lender against collateral to a lender against reliable customer data.
Talking about effective implementation of blockchain in the financial sector, Nair says,”Perhaps one of the first areas we would like it to be used is in validating the KYC data on individual customers as it provides an unforgeable record of identity.” Muthoot Group, he says, is eager to explore the technology and is running trials in various environments.
On the other hand, Yes Bank hopes to implement blockchain in supply chain financing, trade finance and cash management services and remittance solutions. “Blockchain has the potential to be useful in areas of E-KYC as well as AML (Anti-Money Laundering) checks because it helps create a more transparent trail of records for every transaction undertaken,” points out Purohit.
However, not every technology head is so gung ho about blockchain. Chandrasekhar K.L, Chief Manager ITD, Indian Overseas Bank, points out that the chief concern around blockchain would be safety and storage requirements. “The blockchain technology is mainly useful for storage of information and interpretation of data for analytics and not for sensitive type of information like banking,” he says.
“I feel it is premature to talk of the blockchain technology in India. As far as the banking systems are concerned, they have just moved and stablized to a centralized environment. A distributed database or a distributed environment for the storage of information may not be an immediate proposition as a complete analysis has to be made about the type of information to be stored for easy accessibility,” he adds
According to Sriram Raghavan, Director, IBM Reasearch India, the concerns of safety and data storage can be mitigated as the two parties in a transaction network have the liberty to choose which subset of the transaction they can retain. He believes the advancement in blockchain technology such as nuanced data partitioning would make this possible.
“You are going to have underlined data, different entities deciding to keep which subset of the data they want to keep a local copy of. So, I believe the storage concern will actually get mitigated in real deployment as the entities determine which subset of the ledger they actually want to hold,” he says. “In the future we will move from the current simplistic view to a more sophisticated view, that is to a far richer data partitioning across the entities in the network,” he adds .
On privacy, he says that not every instance of blockchain deployment will go over the public Internet. This can be made possible as technology providers like IBM and Microsoft are already working to provide blockchain as a service over a private cloud network.
“This is no different from banking institutions opting for cloud technology for normal business purposes today. Private cloud networks will not just host a single bank’s application but will actually host a network where multiple banks will come together to transact business and that private cloud to a large extent addresses this concern of sensitive data going over internet,” he adds.
According to Raghavan, the use cases of blockchain are many especially for the financial sector and can transcend beyond the fin-tech market. In his view, the most effective deployments can happen primarily in corporate banking, in areas like trade finance and supply chain where the business network is across multiple parties.
“In trade there are at least two parties and two banks involved—the importer, the exporter and their individual banks. In supply chain, you have the vendor, the financier and the supplier for providing parts and supplies to the OEM. So, naturally these two areas of finance are important use cases for the value propagation and we are actually seeing traction in these areas,” he says.
The second use case where blockchain can be helpful is the inter bank networking where transactions cut across banking networks such as inter-bank settlements and payment process, resulting in lower settlement time, saving additional costs that are otherwise incurred due to reconciliations.
To sum up, it is fair to say that blockchain is being considered by the Indian financiers, especially banks. Even the apex body, the Reserve Bank of India (RBI), is currently looking at the possibilities of the technology and is encouraging banks to look into the same in order to reduce dependencies on currency. Early this year, RBI announced a special committee to study the use of blockchain.