ing years we will see much different bank names instead of familiar names in the rankings of the largest banks.
Many banks, realizing that they will lose money transfer operations to blockchain-based applications have taken important steps tocarry out various blockchain projects over the past years in order to retain these services for a while longer.
While many banks are involved in the networks of platforms such as Corda or Ripple, especially in order to make micro payment money transfers faster and at less cost, some banks are applying for patents through internal or outsource project developments to move existing banking practices to the blockchain. In 2018 alone, Banks spent $ 1.7 billion on blockchain research, according to a study by Bloomberg. Money transfers, securities clearing transactions, fraud detection, cyber-security and trade finance were the most invested areas, respectively.
In this context, JP Morgan, one of the pioneers of the industry by acquiring many patents, first announced that it would issue a fixed digital currency (JPM Coin) for the money transfers of corporate customers, and then launched its IIN project. IIN (Interbank Information Network), which has been designed as a decentralized communication system, enabling faster and frictionless transaction verifications in international money transfers, has reached 400 member banks as of January, 2020.
We have often seen banks such as BBVA, HSBC, Santander experimenting on blockchain with processes such as trade finance, corporate finance, documentation on syndicated loans and pricing quotations, not just money transfers. Especially in the Far East, where fraud in identity is common, bank consortiums have formed by establishing a more efficient and cost-effective co-flow by transferring KYC – “know your customer” processes, one of the most important cost items of banks, into blockchain.
However, studies so far have unfortunately failed to go beyond pilot or boutique solutions due to uncertainties in regulations, and difficulties on extending technology into commercial applications and bringing together competing parties.
On the other hand, efforts are being made to make institutional adaptation more widespread. In Singapore, the country’s Monetary Authority, MAS, JP Morgan and Singapore-based global investment company Temasek, have developed a pilot blockchain infrastructure that offers the possibility of international money transfers in different currencies over the same network. This project is the 5th of module of Project Ubin run by MAS. Once Ubin is completed, thanks to its ability to integrate between networks, swap transactions of digital assets against payment on private exchanges, trade financing based on smart contracts, conditional money transfers, and the operation of escrow accounts will be moved to the distributed ledger system 24/7.This promises to be a widespread use, made so far, where many parties will come together.
In the banking sector, we observe the application areas for crypto assets in Germany and Switzerland.
Swiss Financial Markets Supervisory Authority (FINMA) made a very important decision in the last quarter of last year, issuing a banking license to two crypto asset trading platforms. With this bold decision, which can be considered as the first example in the world, Sygnum Bank and Seba Bank will be able to offer crypto asset storage, clearing and possession services by crypto wallet integrations, as well as regulated banking services. Sygnum Bank has also obtained a capital markets trading license from Singapore MAS, focusing on infrastructure work to provide a comprehensive service on Digital Asset Mutual Fund Transactions.
Another important decision came from Germany. The German Bundestag passed the legislation that allowed banks to offer crypto asset sales and custody services from 2020 onwards with the law enacted in November 2019. In addition to banks, companies offering digital asset surveillance services along with cryptocurrency exchanges are required to apply for licenses.
The fact that custody services, an important tool for institutional adaptation, will be performed by banks, which are regulated and audited structures, can be considered as important steps that will enable both the spread of blockchain technology and crypto currencies to take more place in daily life. In this context, we wish that similar efforts and constructive decisions that support the ecosystem are taken in our country.