Big banks have all come to realize that cryptocurrencies are not going away. What they’re going to do about it is the topic of this article. We’ll review some of the world’s biggest financial institutions to see what they are doing today with blockchain technology and what they’re planning for the future. Are these movements into crypto a passing phase, a defensive move or an implementation of their vision to dominate the industry?
It’s obvious that big banks stand to lose a chunk of their business if they don’t grapple onto cryptocurrency and blockchain technology in some way. That’s why most of them have been paying attention and developing their own versions of crypto. Beyond that, many are developing use cases for blockchain tech within their vast networks.
These same financial behemoths have repeatedly relegated bitcoin to the ‘it’s a bubble’ category. Yet most of them are trying to find ways to use the tech behind Bitcoin to advance their own bottom lines. A blockchain not bitcoin sort of approach. Still, others are buying up bitcoin like there’s no tomorrow and putting plans into place to offer crypto fund management.
Before we cover a few of the worlds biggest banks, please note that the top five banks in terms of assets are Chinese. To get a more balanced picture of global happenings with crypto and big banks, we took the top two banks from China and then worked our way around the world.
Industrial & Commercial Bank of China Limited (ICBC)
(Assets: $3.62 trillion )
ICBC, the world’s largest bank, submitted a patent application in November 2017 with China’s State Intellectual Property Office (SIPO). Their goal was to create a way to use blockchain technology to make the current system of certificate issuance less repetitive and more efficient.
According to a recent CoinDesk article, the technology inherent with the patent enables a system in which a certificate issuer can match a user’s credentials with a certain certificate digitally. Along with a quicker approval process, the encrypted certificate data is logged onto a blockchain. The data for that certificate would thus be immutable and also available to anyone dealing with that certificate in the future.
While news of the patent was reported in April of 2018, we haven’t yet seen an official comment by the ICBC.
More recently, ICBC has furthered their interest in blockchain technology. In September of 2018, the Ethereum World News report published an announcement that ICBC would be putting a focus on blockchain tech to improve financial services. They’re putting resources towards researching distributed ledger technologies and also an e-platform called e-ICBC.0. Moreover, they’re working on developing ‘smart banking’ applications. Details are not readily available to the public.
Leaders in Research
Another initiative is the organization of the 2019 International Conference on Blockchain for promoting research. This will be held in San Diego, USA running from June 25th through the 30th. Keynote speakers for the event include experts in AI, engineering, and cloud computing. But no apparent speakers on DLTs, blockchain or cryptocurrencies. However, one of the three panel discussions they have scheduled is titled, “What is the next Blockchain Killer Application?”
While a bank coin has not been publicly mentioned thus far, the Chinese government did have some interesting news just this week. They plan on converting the official Chinese currency (RMB) to their own cryptocurrency.
When questioned as to their stance on banning all crypto, bitcoin mining, and exchanges, they basically pointed out that it didn’t matter – “…because in 20 years we are not going to be using bitcoin in China. Chinese people will use the RMB, only the RMB will become a cryptocurrency. The central bank of China will turn it into a digital currency.”
China Construction Bank (CCB)
(Assets: $2.94 trillion)
The world’s 2nd largest bank, CCB, has been working with IBM on a ‘bancassurance’ program. Their goal is to better fuse banking with insurance services in their retail and commercial arm out of Hong Kong.
Bancassurance is basically a win-win model for banks and insurance companies. They will both benefit from selling insurance products directly through banks. The insurance companies will enjoy a broadened customer base while the banks will see additional revenue.
IBM will be utilizing distributed ledger technology (DLT) for CCB’s bancassurance program. The plan is to enable shared, real-time views of insurance policies. Currently, the processing time for status checks creates inefficient delays. With this new capability, all the corresponding data would be recorded and shared on a ledger built using IBM’s Blockchain Platform.
HSBC Holdings (UK)
(2.57 trillion in assets)
Earlier this year, a Reuters Report came out about HSBC settling $250 billion in forex trades using blockchain technology. While this was only a small percentage of their trading totals, it represented one of the major instances of finance entering the realm of blockchain. The benefits inherent in blockchain for finance were outlined by HSBC at the time:
- Automation of manual processes
- Reduced reliance on external technology
- Lowered risks of errors and delays
- Reduced costs
- Improved balance sheets
In addition to their blockchain Forex dealings, HSBC has also launched a shared blockchain finance platform with France based BNP Paribas in Hong Kong. Called eTrade Connect, the platform’s goal is to create better efficiencies in the financing of international trade. Trade loan applications would see much quicker processing times, their time of approval to go from 36 hours to just 4.
J.P. Morgan Chase Bank National Association (US)
(Assets: $2.45 trillion)
While their leader, CEO Jamie Dimon, has been openly critical of cryptocurrencies, JP Morgan has forged ahead with several of their own blockchain based initiatives. One is an enterprise blockchain platform and the other is their own ‘bank coin’.
Quorum Enterprise Blockchain
JP Morgan’s Quorum Blockchain, using the Ethereum’s platform, is a private permissioned blockchain and smart contract platform. It addresses the need of banks and other enterprises for faster, cheaper transactions and payment settlement across borders and time zones.
Some may feel the lack of a distributed consensus mechanism with private blockchains reduces overall security. However, J.P. Morgan is set on a course to create a blockchain that is “ideal for any application requiring high speed and high throughput processing of private transactions within a permissioned group of known participants”.
Quorum is essentially set up to create improved financial services such as corporate debt issuance and securities transactions to large corporate customers. Talk about scaling the project to reach more retail customers has also been circulating.
In February of 2019, JP Morgan sent out a press release announcing the first ever ‘bank coin’. This quasi-cryptocurrency would first be available to the bank’s wholesale payment customers. When combining these customers, the bank currently records more than $6 billion in daily transactions. We say ‘quasi-cryptocurrency’ because the JPM coins would be missing some key attributes of actual cryptocurrencies, for instance:
- Each JPM coin will be backed by $1 USD. Normally, the volatility of cryptos is what attracts traders, so this coin may really just be a digital version of the dollar. Also, the design of the original cryptocurrency (bitcoin) came from a desire to protect people from the harm done by fiat based economies.
- A cryptocurrency without a public, distributed consensus mechanism may be more prone to hacks.
While JP Morgan had a clear intention to start with their institutional, multi-national customers, there was also mention of eventually scaling the project to reach other parts of the bank’s customer base.
Despite CEO Jamie Dimon’s being a vocal skeptic of bitcoin, the bank has been investing heavily in bitcoin’s foundational technology, blockchain. In fact, just two months after the JPM coin announcement, Forbes reported that JP Morgan was “continuing on a blockchain rampage by posting more jobs in the industry than any other financial firm.”
It’s obvious that leadership at America’s largest bank is not shying away from blockchain technologies and in a sense, is grabbing the bull by its horns.
Many in the crypto community are of the ‘long bitcoin, short bankers’ mentality. Yet even Ethereum founder Vitalek Buterin recognized the contributions of JP Morgan in contributing to the open source Quorum Blockchain project.
Mitsubishi UFJ Financial Group (Japan)
(Assets: 2.459 trillion)
A few days before JP Morgan’s bank coin announcement, Mitsubishi UFJ Financial Group (MUFG) revealed it would be launching their own blockchain based payment network in 2019. With this joint venture with American firm Akamai Technologies, MUFG claimed this new “Global Open Network” would be able to process more than a million transactions per second.
The plan is to roll it out with 250 million Yen in capital with MUFG having the primary stake (80/20). That platform will include capabilities for numerous payment services including:
- Payment processing
- Pay per use
- IoT enabled transactions
Not surprisingly, Japanese banks have been very active in the blockchain and crypto space, most notably in the proliferating of crypto exchanges. In 2018, MUFG, Japan’s largest bank and the world’s #5 in terms of assets, also spearheaded a project with Spain’s BBVA bank and France’s BNP Paribas. In that project, they tested out a $150 million blockchain loan product.
Since 2017, MUFG has been involved with several other blockchain projects. One involves blockchain cross-border trade products, while the 2nd is the upcoming MUFG coin to eventually be its own virtual currency. They’ve been heavily researching since 2016.
After several years of planning, MUFG may soon be ready to roll out its own bank coin. Their plans include testing their MUFG token internally and then on certain customers this year. These beta users will try using the token while making purchases at retail establishments. To do so, they’ll download an app to access the platform.
The coin may be tethered to the Japanese yen at a one to one ratio, but no definitive details are available yet on that. To start, using MUFG coin for overseas remittances may provide an early use case.
According to MUFG President, Nobuyuki Hirano, the bank’s primary concern is to collaborate with other Japanese banks to overcome problems with digital currencies. They eventually want to come up with a token that serves the needs for digital spending needs of retail customers.
We don’t know exactly when MUFG users will be able to spend and trade crypto from the app. But amidst the discussion, there are theories floating that MUFG will enable some variation of peer to peer payments. But this initially would most likely be in regards to remittances and money transfers.
For most crypto enthusiasts, the constant question regarding banks is how can I use my crypto? They want to know how to spend it, what they can buy with it, how they can save some, and where they can trade it.
The blockchain and cryptocurrency movement has actually brought the whole world of trading and finance to the doorstep of everyone with access to the Internet. That’s 81% of the global population at present.
Open source availability ensures that cryptocurrency technology is open to an ever-digitized global population. It’s possible that we’re one generation away from kids growing up not knowing what fiat money is.
So far, what we see from the western banks is how to use blockchain (not bitcoin). They also seem to focus a lot on collaborating with each other to save money on payments. Their goal is to increase their bottom line by providing top quality services to their best customers.
China’s viewpoint is mainly how to manage 1.386 billion people while maintaining the ability to track (and censor) their crypto and fiat transactions. Japan’s focus seems to lie with efficiency and building a bridge to the individual crypto enthusiast or retail investor.
Will Big Banks Survive?
Maybe what some banks don’t realize is that underneath all the hype and Lambo talk, cryptocurrencies are on the minds of everyone who values financial freedom, financial privacy and data protection in today’s cyber world. And this same freedom, privacy, and data protection are quickly becoming available to the masses through blockchain technology.
As one example to back up the notion of cryptocurrency’s growing popularity, the chart below represents the recent growth of Blockchain wallets.
But this is not what these banks are developing. So how can they plan their long term future with bitcoin looming in the background, beckoning all to come and enjoy safe, secure, completely private money?
Big banks plan to use blockchain technology if they haven’t started already. They may even open up institutional style crypto investing to finance’s biggest players. That is likely what their reality will look like. But it won’t be the only reality. It really begs the question: Can banks with their enterprise blockchains and bank coins survive alongside bitcoin and other privacy-based cryptocurrencies?
Meanwhile, new crypto financial products are rolling out from investment firms like Fidelity to our very own HedgeTrade. Right now, our team is busy testing out our tokenized trade predictions app. Be sure to sign up for the upcoming beta round of testing.
Also published on Medium.