On Monday, IBM announced a new blockchain banking solution that allows financial institutions to more quickly and cost effectively process payments across international borders.
The solution will tap IBM Blockchain, along with tech partners Stellar.org and KlickEx Group, to improve banks' speed in clearing and settling payment transactions on a single network in real time, according to a press release.
Making international payments can be costly and complicated, and transactions made in different currencies can require the involvement of multiple financial institutions and take weeks to complete, according to IBM. Modernizing this process and improving financial access could improve international commerce, and extend financial services to one billion people by 2020, according to the World Bank.
IBM's solution is currently processing live transactions in 12 currency corridors across the Pacific Islands, Australia, New Zealand, and the UK. By using the blockchain distributed ledger, all parties involved have access and insight into the financial transaction process—marking another application for the technology.
"The impact to large businesses signals an important step in the evolution of blockchain's production readiness with security and scale, offering operational efficiencies to banks and financial institutions that will help improve their operating margins for payments and [foreign exchange]," Jesse Lund, vice president of global blockchain market development at IBM, told TechRepublic. "Likewise, for small businesses, it enables a more open ecosystem where innovation and improvements to the end user experience become just as important as the scale of any single player's operation."
This solution could make it possible in the future for a farmer in Samoa to enter into a trade contract with a customer in Indonesia, the press release noted. In this case, the blockchain would be used to record the terms of the contract, manage trade documentation, and allow the farmer to put up collateral, obtain letters of credit, and finalize transaction terms and gain payment immediately, the release said.
IBM is initially working with a number of banks including National Australia Bank and TD Bank on the development and deployment process.
For the blockchain industry as a whole, this represents a convergence of cryptocurrency networks and traditional institutional models, Lund said. "Not to imply that cryptocurrencies will become the new standard, but instead that the functional benefits that cryptocurrencies have demonstrated will begin to be adopted and implemented within traditional models, without sacrificing regulatory controls, compliance with standards, security, privacy, etc.," he added.
This solution represents yet another way that blockchain is proving to be the larger value of cryptocurrencies, with implications for almost every industry. The technology is now being used to streamline processes and transactions in fields including real estate, trade finance, education, insurance, and healthcare, according to IBM.
IBM has recently made a number of moves in the blockchain space, including partnering with part of the London Stock Exchange Group to build a blockchain tool to manage shareholder data, as well as partnering with a number of leading food suppliers to better track contaminated food and prevent it from reaching consumers.
Tech leaders must pay attention to the rise of blockchain across industries, Lund said. "Understanding distributed systems, distributed [semi-]autonomous organizations, and shared operational models is going to be an increasingly important part of the future of IT, especially for those technology leaders and organizations that support transactional platforms, as Blockchain continues to enable the rapid deployment of complex transactional business networks," Lund said.
The 3 big takeaways for TechRepublic readers
1. A new IBM Blockchain solution will allow financial institutions to more quickly and cost effectively process payments globally.
2. Modernizing the global payments process and improving financial access could improve international commerce, and extend financial services to one billion people by 2020, according to the World Bank.
3. This marks another move by IBM into the blockchain space, and IT leaders across all industries will need to understand distributed systems moving forward.
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Alison DeNisco Rayome is a Staff Writer for TechRepublic. She covers CXO, cybersecurity, and the convergence of tech and the workplace.