State Street, the centuries-old financial giant, has launched an innovation lab dedicated to blockchain technology experiments. Hu Liang, senior managing director at the company's new emerging technol
State Street, the centuries-old financial giant, has launched an innovation lab dedicated to blockchain technology experiments. Hu Liang, senior managing director at the company's new emerging technologies center, told the Wall Street Journal's CIO Journal that the lab will "identify, explore and prototype" blockchain applications in institutional banking.
The bank is testing blockchain for loan processing, mortgage management, and other financial instruments. Liang explained the distinction between Bitcoin and what banks need: "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."
Liang addressed another dimension of the work: privacy and oversight. "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?" he said. "We want to understand all the different types of ledgers out there."
Earlier this month, State Street joined eight other major banks to support R3, a blockchain consortium. The group includes JP Morgan, Credit Suisse, and Commonwealth Bank of Australia. Liang tied the effort to a fundamental business goal: "Efficiency is one goal all banks are searching for." He described two tracks for the 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?"
Other banks pursued similar paths. Santander disclosed earlier this year that it has tested 25 blockchain use cases. Barclays planned over 45 experiments with the technology, according to Derek White, the bank's chief design and digital officer.
White framed blockchain as a matter of survival. "As a heritage organization we can either embrace disruption or be disrupted. We've chosen to embrace disruption. We're increasingly becoming a technology financial services company, not a bank with a technology division."
Barclays took an additional step by opening two "bitcoin labs" in London for entrepreneurs, coders, and businesses. White described the origin of this approach: "The blockchain community, a little over a year ago, started saying they needed a place to gather. 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."
The bank saw value in direct collaboration with builders. "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."
In the UK, Innovate Finance, a fintech industry body, partnered with Hartree Center, a high performance computing and data analytics research facility created by the UK Government with IBM, to open a blockchain research lab. The lab will start operations in October and will develop "practical applications for blockchain technology relevant to all players in the financial services industry, including regulators as well as customers and partners," according to American Banker reporting.
The planned applications span payment settlements, anti-money laundering, know-your-customer procedures, and digital currencies.
