State Street Corporation, one of the oldest financial institutions in the US, has set up a new innovation lab where it is experimenting with blockchain technology.
According to Hu Liang, senior managing director of the new emerging technologies center, the lab will “identify, explore and prototype” blockchain use cases for institutional banking, he told the WSJ’s CIO Journal.
State Street is exploring how it could use blockchain technology for processing and monitoring loans and mortgages, among many other financial products.
“We want to understand all the different types of ledgers out there. Bitcoin was built for transacting virtual currencies. If you do loans on blockchain, you need abstract representation of an asset that is not coins. That’s what we’re trying to understand.
“From a business point of view, we’re trying to understand identity. Between partners in a transaction, you want to see each other’s trades but you don’t want others to see them. And you want regulators to have oversight. So, how do we do that?”
Earlier this month, State Street announced it has joined eight other major banks, among which JP Morgan, Credit Suisse and Commonwealth Bank of Australia, to back R3, a blockchain consortium.
“Efficiency is one goal all banks are searching for,” Luang said, explaining the purpose of the new blockchain initiative. “One role is to define institutional-grade [uses] for blockchain.”
“The other role is to look at applications. If we build an infrastructure, what applications can we put on it? Loans? Mortgages? Finance? Other things with arcane, manual processes? That’s what we’re trying to understand – how would we put an arcane financial asset on a blockchain?”
All major banks are experimenting with blockchain technology, including Santander which said earlier this year it has been testing 25 use cases for the technology.
Meanwhile, Barclays said it is planning to conduct over 45 experiments with the technology, Derek White, Barclays’ chief design and digital officer, told Business Insider.
“As a heritage organization we can either embrace disruption or be disrupted,” White said. “We’ve chosen to embrace disruption. We’re increasingly becoming a technology financial services company, not a bank with a technology division.”
In addition to conducting trials internally, Barclays is also working with startups, setting up two “bitcoin labs” in London for entrepreneurs, businesses and coders.
“The blockchain community, a little over a year ago, started saying they needed a place to gather,” White said. “Some would say they’re the anarchists. We said, why don’t you come use our space? So we invited them in so we can learn together.”
“It’s a new technology, we know a little bit about it but we wanted to learn more from the creators of it. They could see our genuine interest in the technology and they could see we weren’t looking to just sponsor, we were looking to shape.”
Meanwhile, Innovate Finance, a UK-based fintech industry body, has teamed up with Hartree Center, a high performance computing and data analytics research facility founded by the UK Government in association with IBM, to open a blockchain research lab.
The lab, which is expected to begin operating in October, will explore and develop “practical applications for blockchain technology relevant to all players in the financial services industry, including regulators as well as customers and partners,” reported the American Banker.
This would include applications for more efficient payment settlements, anti-money laundering, KYC procedures and digital currency use.
Image credit: State Street.