Big Banks Test Blockchain’s Trading Tech

The blockchain is getting some major attention from 11 big banks, including Barclays, UBS and HSBC, all of which have shown their affinity for blockchain’s tech for some time.

Reuters reported yesterday (Jan. 20) that the banks are testing a system that uses blockchain to make financial trading faster and cheaper. The banks involved are part of a larger group of 42 major lenders who collaborated in 2015 to work with the company R3 on innovating blockchain in ways that can disrupt how the financial markets operate.

Across the financial ecosystem, banks have been exploring ways that blockchain — the decentralized ledger and technology that powers bitcoin transactions — could be used to exchange data, assets and currencies. The real benefit from what the bank’s leaders have expressed is the potential to make their operations more efficient and more transparent.

Of course, there are still plenty of skeptics who think it’s too early to bet on blockchain for revolutionizing the financial system, since there are still concerns about the volatility of bitcoin and anything attached to it.

In Sept. 2015, several of the world’s largest financial institutions stole the spotlight for their decision to join startup group R3 in exploring and developing new technologies and uses for blockchain technology, the key to making the cryptocurrency bitcoin operate properly.

Barclays, Goldman Sachs, JPMorgan, RBS, UBS and several others backed R3’s initiative to get an early start on how financial institutions could leverage blockchain technology to enhance payments. Some industry experts say the blockchain could overhaul a legacy, outdated global banking system and lead to far faster payments. Many players also point to the potential of blockchain technology to streamline B2B payments, in particular, and solve the increasingly troubling issues in the space of cross-border friction and large payment volumes that are often unique to the B2B arena.

“If you’re looking to introduce applications with distributed ledger technologies to improve the financial markets, you can’t have each participant working to a different pattern,” Christopher Murphy, global co-head of FX, rates and credit at UBS, told Financial Times last fall. “What R3 [is] doing is bringing a consensus, which could establish common standards.”

For this specific test that’s catching all the attention this week, R3 used a Microsoft platform, running on an Ethereum blockchain. What the test showed is the potential to settle transactions on a near-instant basis. This would be drastically faster than what’s on the market today, which often takes days or weeks, depending on what is being traded.

The idea is to get this concept fully up and running in the next year or two.

“Rather than just talking about what we might do, we’ve moved into a new phase, which is actually executing these plans and demonstrating how this technology might work in practice,” said Tim Grant, who runs R3’s test labs.

“Proving the scale and peer-to-peer operation of blockchain experiments is an important next step,” UBS Senior Innovation Manager Alex Batlin told Reuters.