Blockchain technology to see increase in adoption globally this year

KUALA LUMPUR: The blockchain technology is likely to see an increase in adoption globally this year by major commercial banks, and of particular interest, it is to see how central banks in developed countries, like the United States and the United Kingdom, make a foray into it.

An information technology (IT) Consultant, Ng Kien Lock, said the technology has made rapid progress worlwide and variants of Bitcoin have made significant developments to address inherent weaknesses and were being adopted in many testbeds.

The blockchain is seen as the main technological innovation of Bitcoin, since it stands as a proof of all the transactions on the network.

A block is the ‘current’ part of a blockchain records some or all of the recent transactions, and once completed it goes into the blockchain as a permanent database.

He said in 2016, there was a rise in usage of the likes of Bitcoin and variants globally.

“( However), we cannot say that blockchain is commercially successful but there are certainly more vendors venturing into this space in 2016,” said Ng.

Ng said he expected major IT vendors like IBM, Dragonfly and Malaysia-based R3 to to engage actively with the local banking industry this year.

According to a news report, which quoted a survey by IBM in September last year, about 15 per cent of the banks worldwide were expected to adopt blockchain technology.

The report said most medium- to large-scale banks were focussing their blockchains on consumer lending, retail payments and reference data.

“The reference data is real-time information sharing of transactions across business divisions and institutions,” it said. Ng said Malaysian banks were not far behind their American and European counterparts in adopting blockchain as the technology was still new and only being leveraged for testbeds and not mainstream banking.

As for Malaysia, Ng said, the country has made strides in addressing the financial technology (fintech) potentials with Bank Negara Malaysia (BNM) playing a major role to encourage local banks to take advantage of the new playing field.

In October last year, the central bank issued the Financial Technology Regulatory Sandbox Framework to allow local banks to explore and experiment the new technology and try new fintech ideas without worries.

“BNM is likely to draw up a framework when local banks provide more feedback based on their various experiments, hopefully this year,” said Ng.

Meanwhile, domestic banks, including CIMB Group Holdings Bhd, have started to adopt digitalisation exercise to seamlessly serve their customers and is actively considering a number of emerging areas, including blockchain.

CIMB Group, the second largest lender by assets, is now implementing its Target 2018 (T18) initiatives introduced in early 2015, to rein in cost and re-optimising its investment banking business.

One of the targets under T18 was to complete the bank’s ASEAN footprint by 2018 while focussing on financial targets, including consumer banking, to contribute approximately 60 per cent of its income.

CIMB Bank Bhd Senior Managing Director for Regional Digital Banking and Decision Management, Vijay Manoharan, however, ruled out a consideration for blockchain technology adoption in CIMB’s regional expansion.

In December, CIMB Group Chief Executive Officer, Tengku Datuk Seri Zafrul Aziz, said the group was stepping up its digital game with the launch of mobile banking platform in Vietnam’s commercial capital of Ho Chi Minh City in the second half of 2017.

He said through the digitalization programme, the bank’s digital transactions grew by 38 per cent last year and mobile application’s fund transfer function had contributed to over 150 per cent increase in mobile transactions in 2016.

“If the industry is to look at blockchain collaboratively, we would create tremendous value for participants in areas like Know-Your-Customer, payments, settlements, trade financing and even supply chain management,” Vijay told Bernama in an email interview.

However, he said, the adoption of a new technology, such as blockchain, would also depend on regulatory facilitation to encourage industry-wide acceptance and multiple parties coming together to create a real need in the marketplace.

While blockchain adoption will take time and be gradual across the finance sector, Bain & Co Singapore Partner, Thomas Olsen, said its impact would be significant to change cost and market structure.

“Not all banks need to drive the innovation but all banks, including Malaysian banks, need to prepare for strategic implications of distributed ledger technology on costs, market structure and the impacts on their competitive position,” he told Bernama.

Olsen cited examples that would impact the Malaysian banks adopting blockchain technology, including cross-border payments, trade finance and post-trade processing and collateral management in exchange traded. — Bernama