Blockchain is best known as the technology behind the virtual currency Bitcoin. The two were almost synonymous at one time. That, however, started to change when central banks around the world voiced their reservations about virtual currencies. For those working with the blockchain technology, this meant that blockchain had to be separated from bitcoin if central banks and commercial banks were to be persuaded to look at it seriously.
This divergence holds true in India too. While the Reserve Bank of India (RBI) has cautioned against the use of virtual currencies, the Institute of Development and Research for Banking Technology (an RBI subsidiary) has been conducting trials on possible use-cases of the blockchain technology across the banking sector.
One of the participants in these trials was MonetaGo, a U.S. based company that provides solutions based on blockchain to central banks and commercial banks around the world. The company, headquartered in New York city with eight offices around the globe, provides end-to-end blockchain support.
When the company first started in 2014, it was with the idea of promoting alternative virtual currencies like bitcoins. As the mood around such currencies soured, the company did a pivot towards other uses of blockchain.
In a conversation with BloombergQuint, Jesse Chenard, chief executive officer of MonetaGo said that there are multiple uses of blockchain beyond virtual currencies and that is what the company is focusing on in India. It is in talks with the RBI on the deployment of certain solutions, while also working with commercial banks to help run pilot projects based on the technology.
The idea, said Chenard, is to get Indian banks to adopt blockchain by integrating it in their existing processes such as payments, remittances and trade-finance settlement. One example of this is the setting up of a State Bank of India led consortium which is looking for ways to use blockchain technology to prevent frauds in the system by sharing a negative list of defaulters among participant banks.
While some are of the view that blockchain solutions aren’t viable for a heavily regulated and centralised industry like banking, Chenard said that banks just need to work together to set up resilient systems which cut down points of failure.
Chenard added that the company showed ‘proof of concept’ for trade finance and trans-information payment systems during the IDBRT trial. The company has come up with more than 100 possible use cases for banks, explained Chenard in the conversation below.
Indeed, blockchain based solutions are starting to gain currency among Indian banks. In October last year, private sector lender ICICI Bank executed India’s first banking transaction using blockchain on a pilot basis. These transactions were carried out for trade finance and remitting money. Others like Yes Bank and Axis Bank are also experimenting with blockchain technologies but a commercially viable solution is yet to emerge.
According to the Chenard, one strong use case of blockchain is integrating it with payment and remittance systems. India has a number of well established payment networks like Immediate Payment Settlement System (IMPS) and Real Time Gross Settlement (RTGS). MonetaGo argues that these systems can be made more secure and efficient through the use of blockchain technology.
We don’t need to provide a new payment system. We need to integrate with it. We need to ensure that settlement agents are represented on the blockchain and have authority over any application that touches the payment. But the settlement still happens at the bank and the report comes from the National Payments Council of India.
Jesse Chenard, CEO, MonetaGo
Will MonetaGo be able to convince central banks, including the Reserve Bank of India, that this is a good idea? Chenard said he is hopeful.
Chenard, however, added that the process is still in an “educational” stage and there is little chance that a commercial roll out will happen any time soon.
This was echoed by Saurabh Aggarwal, chief executive officer of Zebpay and member of the Digital Asset and Blockchain Foundation of India. Aggarwal said that most of the blockchain applications are still in trial stage but there are ample uses for banks and financial companies.
“Blockchain provides that level of trust and security which can be helpful in multiple applications for banks and financial institutions. This is why they are exploring it but everything is in a pilot stage as of now,” he said.
Aggarwal, however, added that blockchain may not work without an underlying token, i.e. a currency like bitcoin, which provides incentives for miners to join the system and verify each transaction. Since banks are not open to the idea of using a virtual currency, applications might be limited, he said.
“It’s as good as using any other database if there’s no underlying token in the blockchain system. Banks are not convinced by it till now but over the world this understanding is coming that blockchain is not of much use without a currency,” he added. – Bloomberg Quint