https://m.economictimes.com/etreporter/author-anjali-venugopalan-479252443.cms
By Anjali Venugopalan, ET Bureau
MUMBAI: Some of the largest Indian banks already use blockchain and the technology is now finding buyers among all high-street lenders that are seeking to thwart competition from fintech firms.
Ripple
Blockchain is like the “Whatsapp highway for payments,” says Navin Gupta, Managing Director of South Asia and Middle-East and North African regions at Ripple, a global blockchain firm. Just like messages on Whatsapp, transactions on it are encrypted and peer-to-peer.
Ripple recently partnered with Kotak Mahindra Bank to provide near-instant cross-border remittances. Right now, remittances take anywhere between half a day to 3 days, depending on the mode of transfer. Deepak Sharma, Chief Digital Officer at Kotak Mahindra Bank, estimates that costs too will reduce by 10-40%. Other partners include Axis Bank, Yes Bank and IndusInd in India and around 100 others abroad.
Unlike non-banking financial companies (NBFCs) abroad, Ripple doesn’t use cryptocurrencies, since the Reserve Bank of India has banned it.
NBFCs cornered the $616 billion remittance market (World Bank figures) despite lacking huge reserves of fiat currencies, by using cryptocurrencies instead – essentially privately issued currency.
“Bankers were losing to fintech companies who could provide much faster remittances,” says Gupta.
“We are expecting newer corridors in Asia-Pacific and Africa to be able to leverage this network and push for small value payments, which were not cost effective earlier,” says Kotak Mahindra Bank's Sharma.
NSE
“Blockchain is taking off because it dramatically reduces the cost of coordination,” says Raunaq Vaisoha, co-founder and CEO of blockchain company Elemential.
Elemential recently partnered with the Central KYC (C-KYC) registry to transfer KYC data onto the blockchain.
In 2015, the Securities Exchange Board of India (SEBI) mandated that all KYC information from the various KYC Registration Agencies (KRAs) in India like must be held on the CKYC registry. Vaisoha estimates it took 18 days for one person’s KYC information to travel across all KRAs. And having a single registry meant that only a limited number of requests could be handled. The costs of backup were massive.
Blockchain is decentralized. Instead of a single place where data is stored, “hashed” files of every Indian’s KYC data are created and stored on any number of “nodes”, hosted by banks themselves.
What about privacy and security concerns? A “private key” is needed to access data from the nodes. Whenever a request is made using this key, the blockchain records it and the NSE gets to know. Potentially illegal downloads of data can be flagged this way.
Even if the private key is compromised, the hash can’t be tampered with, because only information that is consistent across the majority of nodes is accepted on the blockchain. To tamper with data, more than half the nodes would have to be compromised – an unlikely proposition.
Bankchain
Right now, several hundred blockchains exist. Think of these as different operating systems like Android and iOS. Firms like Primechain step in to make communication between these blockchains possible. Primechain operates Bankchain, a group of 37 banks in India and the Middle East that can license Primechain’s API (application program interface) and applications.
These applications are used for cross-border remittances, vendor on-boarding, KYC, managing and selling non-performing assets.
Finacle Trade Connect
B Madhivanan, Chief Digital Technology Officer at ICICI Bank says that trade is an area where block-chain has huge potential. The main “pain point” is ensuring authenticity of documents like letters of credit. By using blockchain, the process not only goes digital, payments also have a guarantee of not getting stuck. Unlike current digital payment methods like e-wallets, where a wrong payment can take days to get reversed, blockchain eliminates the intermediary. Money either goes straight to the receiver, or stays in the sender’s account.
Infosys has partnered with ICICI and other banks to develop a blockchain network for trade called Finacle Trade Connect. The platform will be able to “amplify existing messaging infrastructure such as SWIFT”, said Rajashekara V. Maiya, Vice President of Infosys Finacle. “Eventually, if all stakeholders agree, it can replace SWIFT.”
Indian banks have formed another consortium, as yet unnamed, to develop a “common computing infrastructure” for blockchain, according to Mrutyunjay Mahapatra, Chief Digital Officer at State Bank of India. The other banks in this consortium are ICICI, Kotak Mahindra, Axis, Yes Bank, Bank of Baroda, HDFC, IndusInd, RBL and South Indian Bank.
According to Madhivanan, the consortium is also working on a set of standard regulations to guide the use of blockchain. The members meet every month.
A word of caution
Despite the excitement around blockchain, Primechain co-founder Rohas Nagpal has a word of caution, “Blockchain is not Rajnikant. It can’t do everything.” Because blockchain depends on replicating files across nodes, it won’t work for heavier files such as photos or videos.
Some fear that having several different players offering blockchain services could lead to banks working in silos. If one particular blockchain service is like Whatsapp and the other is like Instagram, a Whatsapp user will not be able to talk to an Instagram user.
“If the [blockchain] business has to grow, then there needs to be inter-bank operability,” said Madhivanan. Gupta says that Ripple can “scale horizontally” and connect with other services.
Vaisoha, on the other hand, doesn’t think this is a problem that warrants much attention now. Just like several messaging platforms coexist in the world, the ease of blockchain services will ensure they survive, even if they aren’t inter-operable.
There are also differing views on the number of blockchains that will survive. “We believe that only a few blockchains will survive over the next few years,” says Nagpal. Vaisoha says there is space for different blockchains to co-exist.