18 October 2017
SIBOS day 2 – A discussion about the role of payment infrastructures in the era of instant
Distributed Ledger Technology (DLT) should be a solution to address a particular problem and not a solution looking for a problem. That was one of the key messages during the session ‘Blockchain and payments: Lessons learnt and future prospects’ on the second day of SIBOS. The panel members discussed ‘the initiatives across the globe to further experiment with block chain technology in pursuit of the holy grail of a production ready Distributed Ledger Technology (DLT) payments solution’. This blog will summarize the session.
A big audience attended this session, which shows that Blockchain or DLT are important topics for the guests present at SIBOS. DLT was also mentioned as an important topic for the banks and other companies in the previous blog post on the instant international payments. In this session, the discussion between the panel members focused on the present initiatives and future role of Blockchain. Matthew Spoke (CEO at Nuco Inc) was the moderator, Shirish Wadivkar (Global Head, Correspondent Banking Products at Standard Chartered), Yuko Kawai (Deputy Director-General, Head of FinTech Center, Payment and Settlement System Department at Bank of Japan), Ivar Wiersma (Head of Innovation Wholesale Banking at ING), Manish Kohli (Managing Director, Global Head of Payments and Receivables at Citi) and Carolyn Wilkins (Senior Deputy Governor at Bank of Canada) formed the panel.
Strong belief in Blockchain
The discussion began with a question about a status update for several DLT-initiatives. Wilkins (Bank of Canada) said that it is important to do fundamental research, because experimenting is the perfect way to learn. This works best when private and public partnerships are created. Kawai (Bank of Japan) told that her bank has a fintech center and that they completed the first phase in a Blockchain study with the European Central Bank (ECB). Wiersma (ING) also has a strong believe in Blockchain and he said it is important to get the hands dirty. Wiersma: “Blockchain should not only be tested in laboratories but also in real life.” Kohli (Citi) said Blockchain is beyond the proof of concept phase after some successful tests. Wadivkar (Standard Chartered) said that they are now focusing on SWIFT GPI and Ripple. For him it is important that the world needs to look at problems to be solved, instead of solutions looking for a problem.”
A platform like the internet once was
The moderator then asked where Blockchain is now, compared to the thinking of two years ago. Wilkins (Bank of Canada) said it was difficult to imagine two years ago where we would be today, but she was impressed by how fast some technical issues got resolved. According to Wiersma (ING) we usually overestimate the impact on the short time and underestimate the impact on long time. Wadivkar (Standard Chartered): “DLT may become a platform like the Internet once was and that we need to understand the applications it can be used for.” Kohli (Citi) added that banks should not focus on applying new technologies but on solving problems for their clients.
Explore the possibilities
The panel members agreed that DLT has a lot of potential for the payments industry, but it is needed to explore the possibilities and applications. Remittance is interesting in today’s world and that may be a good area for DLT. According to Wiersma (ING) remittance is not a key focus area at ING, more prominent use cases can be found in trade finance and open account trade where a lot of the work is still paper based. Kawai (Bank of Japan) stressed that the key success factor of any DLT application is scalability. Wilkins (Bank of Canada): “The role is focused on the application of the technology and not on the technology itself. We need to help the industry to develop DLT in a sustainable way.” One of the applications of DLT are the cryptocurrencies, such as Bitcoin. Should central banks issue their own cryptocurrency, asked the moderator? “The industry and central banks need to co-create since they have the same objective: to help customers,” said Wadivkar (Standard Chartered).
Scaling and interoperability
A lot of different DLT networks are being built at the moment, which means that scaling and interoperability become relevant topics. Kohli (Citi) said that interoperability of payment systems is very relevant, but DLT is still too immature for standardization. Kohli: “The ‘last mile’ is what makes payments complex and expensive.” Wadivkar (Standard Chartered) mentioned that SWIFT GPI and DLT should not be seen as competitors, but more how these can work together in connecting all these systems and networks: “This is where scalability becomes important at the intersection.”
Digital currencies replacing cash
On digital fiat currencies, Wilkins (Bank of Canada) said that the usage of cash declines, although not in the same pace around the world. “It is logical to think of a digital replacement for cash.” Kohli (Citi) thinks banks should focus on DLT to facilitate commerce in the world. That is possible by exploring new technologies that may help to facilitate and transfer money more efficiently.