DURBAN - When the hyperledger fabric-hosted foreign exchange payments and settlement system that Standard Bank is developing in the cloud goes live in the first half of this year, it will significantly increase the success of international trades.
It will also speed up foreign exchange payments and settlement while making transactions more transparent, "providing an independent and much safer cloud-hosted record of all documents and steps, instantly available in real time to all parties involved," predicts Richard de Roos, Head of Foreign Exchange for Standard Bank Group.
Standard Bank clients conducting foreign exchange for payments in Africa currently face several challenges in meeting regulatory reporting burdens as well as accessing liquidity.
Completing a foreign exchange transaction for offshore payments typically involves a three-step journey. The first mile requires; originating the instruction, accessing an exchange rate, correctly identifying the beneficiary details, complying with regulation, and then accessing available funds. In the second mile payment instructions are remitted to the beneficiary bank. In the third and final mile, the receiver is paid by the beneficiary.
The Standard Bank team noticed that, "the majority of client trades fail in the first mile of payment. That is, at the very beginning," said de Roos. If Standard Bank could develop a limited blockchain that reduced failure in the first mile of foreign exchange payments and settlement, then simply hand the transaction over to SWIFT (which already manages payments via its own tracker feature, called Global Payment Initiative).
While successful proof of concept and live blockchains do exist, “the scale of the private permission-based participation required to build widely utilised and scaled blockchain ecosystems has to date, rendered them, impractical,” says Mr de Roos.
As such, Standard Bank’s development of a limited private permission-based distributed ledger accessed through an easy-to-use web-based customer interface and ultimately available at all its online channels, "is an important first step in growing a scalable private permission-based foreign exchange payments and settlement blockchain ecosystem across Standard Bank’s 20 market African footprint," said de Roos.
Standard Bank is also working with its major shareholder and global banking partner, the Industrial and Commercial Bank of China (ICBC), enabling Standard Bank to extend this private permission-based ecosystem into China. This will ensure a seamless trackable payment experience for all Standard Bank clients – covering the African continent and augmented with Asian interoperability.
The challenge with distributed ledger technology, however, is that for it to work, “you need to attract multiple users to a single point in the cloud, and then make this point available to multiple other users,” says Mr de Roos. Normally, this means either owning both ends of the system, or having thousands of banks and other involved parties around the world all joining and operating the same block chain.
While in time Standard Bank expects to participate in much broader – even universal – blockchain-based payments ecosystems, "we are currently focusing on quickly addressing specific client pain points through a limited private permission-based format," said de Roos.