Like a few other guys, I fly around the world almost nonstop. When people ask me where I live, I say the British Airways lounge, and George Clooney’s Up in the Air character looks like a novice to me. Yet, even with all of that experience, you now and again encounter an anomaly. China, for example. What about China, for example? Well, China, for example, is the only country I’ve visited that doesn’t like my iPhone charger. It’s the only country in the world that actually takes my charger from my carry-on case and bins it. That’s annoying, especially when you have one of the world’s best iPhone chargers, so the next time I went to China, I put the charger in my hold luggage. Nah. I just flew through China again and they dipped into my hold luggage, took the charger and binned it. You are not allowed any lithium battery products in any Chinese airport in your carry-on or hold luggage.
Why am I sharing this story? Because this is at the heart of banking and the blockchain.
A century ago, countries implemented different standards for most things. Our electricity, roads, governments, taxes, benefits, languages and more are all different. One of the harmonising things of the internet age is that things are all becoming standardised globally. The language of the internet is English; the challenge of governments is to work out how to tax the internet; Wi-Fi and web usage is becoming normalised everywhere, as demonstrated by the fact that Facebook recently surged through a billion people using the service at the same time.
Internet inclusion is leading to standardisation and harmonisation whether we like it or not, but it’s not there yet. A global platform will probably take another generation to generate, and in the meantime we will live with the anomalies. The problem is that anomalies cost.
You want standards? No problem, we have many. Which one do you want?
This is the issue, and is the reason why banks talk about interoperability and standardisation at all the conferences I attend. ISO20022, XML, SEPA, XS2A, TARGET2 and T2S and more are all driving for common architectures and infrastructures, to lower costs and improve straight-through processing.
Now we stand on the cusp of a new world: an open source world of finance, where our infrastructures can be re-architected to work as shared, distributed ledgers in a global network via blockchain. Yet, there’s an issue, and I often raise it. The issue is that we cannot create shared, distributed ledgers if some of the players won’t share it.
A global clearing and settlement system via Digital Asset Holdings is fine, but there are others trying to create a global clearing and settlement system such as SETL, Epiphyte, Clearmatics, Overstock and more. Who will win? Will there be a shared global clearing and settlement system, or (more likely) several variations that suit different geographies and lines of business?
There’s no such thing as a bank blockchain if the chain is only shared by a small group of players. There is something that does lend itself towards global standardisation in banking, however, which is Swift. Swift has forced standards in the past – I always remember the bitching and moaning when they forced everyone to upgrade to SWIFTNet a decade ago – and may have to do so again. In December, intriguingly, Swift joined the Global Payments Innovation Initiative with the Linux Foundation. If you missed the announcement:
The Linux Foundation, the nonprofit organization enabling mass innovation through open source, today announced a new collaborative effort to advance the popular blockchain technology. The project will develop an enterprise grade, open source distributed ledger framework and free developers to focus on building robust, industry-specific applications, platforms and hardware systems to support business transactions.
Early commitments to this work come from Accenture, ANZ Bank, Cisco, CLS, Credits, Deutsche Börse, Digital Asset Holdings, DTCC, Fujitsu Limited, IC3, IBM, Intel, J.P. Morgan, London Stock Exchange Group, Mitsubishi UFJ Financial Group (MUFG), R3, State Street, SWIFT, VMware and Wells Fargo.
No sight of anything out of it yet, but with Swift onboard, it could make things happen. As C24’s CEO Craig Beddis stated in his blog about the subject: ‘Blockchain needs Swift as much as Swift needs blockchain’.
That may be true or maybe it’s not. Blockchain is gaining traction with or without Swift. The earlier mentioned Digital Asset Holdings (DAH) has pretty impressive backing between alliances with Accenture, PwC and Broadridge; early trials with JP Morgan and the Australian Stock Exchange; and backing from ABN Amro, Accenture, ASX Limited, BNP Paribas, Broadridge Financial Solutions Inc, Citi, CME Ventures, Deutsche Börse Group, ICAP, JP Morgan, Santander InnoVentures, The Depository Trust & Clearing Corporation (DTCC) and The PNC Financial Services Group Inc.
Equally, the R3CEV consortia could challenge Swift, as 42 of the world’s largest banks (see below) back the initiative which has early trials using Erethreum to build the next-generation payments system.
The trouble is that as we see these burgeoning interests in developing bank blockchain standards, we’re potentially going down the same route as the Chinese lithium battery ban. You want standards? No problem, we have many. Which one do you want?
I hope that in a year or two, we can see a different landscape, where Swift works in partnership with DAH and R3 to create true interoperability and standardisation via databases that are shared by all banks that need to share them.
The 42 banks onboard with R3CEV are:
- Banco Santander
- Bank of America
- BMO Financial Group
- BNP Paribas
- BNY Mellon
- Canadian Imperial Bank of Commerce
- Commonwealth Bank of Australia
- Credit Suisse
- Danske Bank
- Deutsche Bank
- Goldman Sachs
- Intesa Sanpaolo
- P. Morgan
- Macquarie Group
- Mitsubishi UFJ Financial Group
- Mizuho Bank
- Morgan Stanley
- National Australia Bank
- Northern Trust
- OP Financial Group
- Royal Bank of Canada
- Royal Bank of Scotland
- Skandinaviska Enskilda Banken
- Société Générale
- State Street
- Sumitomo Mitsui Banking Corporation
- Toronto-Dominion Bank
- S. Bancorp
- Wells Fargo
- Westpac Banking Corporation.