South African banks expect breakthrough blockchain year

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South African banks are looking to increase their investments in blockchain and distributed ledger technologies this year.

The financial institutions told ITWeb that while they are still experimenting with these technologies, in 2022 they will explore new use cases.

The banks note blockchain holds the promise of bringing greater efficiency and transparency to the banking industry, and by investing in blockchain technologies, they will be able to bring more innovation to the market.

However, they note that as with any emerging technology, one of the biggest challenges is on the regulatory front.

A recent Deloitte study reveals more than 95% of respondents surveyed affirmed they would make some level of investment in blockchain or distributed ledger technology.

In an e-mail interview, Absa says it invests significantly in a range of democratised computing technologies, including distributed ledger technologies (one of which is blockchain), several of which will promote financial inclusion by providing greater access to banking services.

“In particular, Absa continues to invest significantly in technology and innovation in the payment space, where we have pushed the boundaries in the past.

“Several concepts are currently in development in the area of distributed ledger, including blockchain technology, and we are working with the best minds in this space to bring new products and services to life as we look to become a more digitally-powered business.”

Open co-operation

Absa became a member of the Hyperledger Foundation this month to expand its knowledge and network in the global distributed ledger community, and broaden its understanding of the use of the technology in the financial services sector.

Hyperledger builds enterprise blockchain ecosystems through global, open source collaboration.

Absa also notes it is at the forefront of the development of self-sovereign digital identity, which incorporates distributed ledger technology.

In an interview with ITWeb, Ian Putter, blockchain lead at Standard Bank Group, says the financial institution has seen several use cases of the emerging technology, including cross-border payments, remittances and electronic fund transfers.

“We are working on scaling a lot of initiatives that we started last year and try to use them a lot wider. We are also looking at new opportunities. So definitely, we are going to increase our investments in blockchain, distributed ledger technologies and similar technologies, given the work that we have done over the years.”

On the challenges of implementing these technologies, Putter says initially people needed to comprehend or understand the technology.

“A lot of people thought it is a solution looking for a problem but it’s actually a brand new, unified type of decentralised architecture where a lot of applications run seamlessly. Using blockchain, you can also track and trace transactions in real-time. People struggle to understand that and that’s always the case with new technology.”

He points out there will always be people biases towards the technologies with which they are familiar. Getting regulatory compliance for new technology is another challenge, adds Putter.

“You have to make sure people are aware of all the risks – it’s not all about getting benefits when you implement a new technology. Even though this is revolutionary and proactive type of technology, you need everyone to understand it.”

Trust is central

Nedbank, which is also looking to increase investments in the space, says some of the biggest use cases in terms of adopting blockchain technologies it is involved in include the exploration by the South African Reserve Bank of central bank digital currencies (CBDCs) and the efficiencies the adoption of this technology stack can potentially bring to the banking settlement processes.

South Africa recently announced a trial of CBDCs for cross-border payments that could motivate other financial institutions around the world to work towards using the technology.

Says Nedbank: “The current innovations in the blockchain and crypto-currency ecosystem are vast. From a purely technology perspective, blockchain and smart contract technologies have the potential to introduce great efficiencies in current financial value chains, like trade finance, for example.”

The challenges Nedbank has faced with adopting the technology include understanding the regulatory requirements in this space; obtaining the correct resources to implement and integrate into these ecosystems; as well as ensuring customers and staff are educated in this new asset class while ensuring risk, compliance and legal reporting and models are not compromised.

Financial services company RMB is also looking to up the ante in blockchain investments.

Christiaan du Preez, chief information officer for banking at RMB, says a blockchain solution brings the element of trust among participants in the network.

“However, blockchain should not be seen as a solution looking for a problem. It is not about the technology, but the value it can deliver to our clients or their ecosystem. However, we do believe it is prudent to stay close to all emerging technologies, given the ever-changing client reality.”

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