Deutsche Bank has signed up to the financial services industry’s biggest blockchain project, in a move that will lower costs at the German bank and give global heft to a system created to speed up cross-border payments.
The JPMorgan Chase-led Interbank Information Network (IIN) will this week announce Deutsche as a new recruit to a network of 320 banks which have agreed to swap information on global payments over blockchain, the mutually distributed ledger technology behind cryptocurrencies.
Their goal is to free payments from the lengthy and costly delays that affect around 1.5 per cent of cross-border payments by making information about the transfers instantly accessible to every bank in the payments chain.
Most of IIN’s existing members are banks who use JPMorgan as a correspondent bank to process dollar payments on behalf of their clients. Deutsche is the world’s biggest clearer of euro denominated payments.
“A network that only has JPMorgan’s clients will have very big natural limitations,” said Takis Georgakopoulos, head of payments at JPMorgan. “It would mean that all of these other smaller banks would still need to have bifurcated procedures, what they do with JPMorgan and what they do with other banks would still have to be different.”
“Having Deutsche join — and hopefully Deutsche will be the first of several other large banks — is going to help us drive towards ubiquity and ubiquity is a pre-requisite for the success of the network.”
Transaction banking, including cash management, is one of the only remaining sources of global strength for Deutsche after a July restructuring signalled swingeing cuts to its investment bank. Ole Matthiessen, who has headed Deutsche’s cash management division since March, said the IIN would allow his bank to offer better services to their clients, and would lower the cost of processing difficult payments.
“Our competitors are not just the other banks, it’s also new players in the market, we need to become efficient enough to provide seamless real time and digital process,” Mr Matthiessen said.
“It [joining IIN] is definitely directionally a very important step for us because it will help drive [customer] satisfaction”
Mr Georgakopoulos said INN was saving JPMorgan both time and money, by allowing them to resolve within hours issues that would previously have taken two to 16 days. The efficiencies come because IIN puts all the information about a given payment on a mutually accessible ledger, allowing anomalies to be resolved quickly with less manual effort.
Mr Matthiessen said Deutsche could also benefit from other potential uses of IIN, like using it as a platform for banks to share know-your-customer checks.
So far, more than 65 banks have gone live on the system and another 255 have signed letters of intent, well up on the 75-plus banks who were signed up to IIN a year ago. Mr Georgakopoulos said IIN was on track to reach its target of 400 agreements by the end of the year and expects to announce other large banks “imminently”.
The IIN is one of a number of initiatives aimed at speeding up the global payments system, including Mastercard and R3’s blockchain-based cross-border platform and the admission of blockchain firms to the traditional global interbank messaging system Swift.
“If there was a global new payment system that included all of the banks and was all digital then yes probably [IIN] would be redundant,” said Mr Georgakopoulos.” It’s just we are very, very far away from that.”