ANZ's Head of Transaction Banking on how blockchain is being used to streamline cross-border payments, 'know your client' checks and the processing of bank guarantees

ANZ's Head of Transaction Banking on how blockchain is being used to streamline cross-border payments, 'know your client' checks and the processing of bank guarantees

By Jenée Tibshraeny

Banking as we know it is changing. New technology - blockchain, cryptocurrencies - are challenging systems we’ve had in place for years.

Some believe banks are being left behind. This may be the case, but banks certainly haven’t been idle.

They aren’t reinventing the wheel, but are using technology to streamline and enhance what they do.

Speaking in a Double Shot Interview, ANZ Institutional NZ's head of transaction banking, Reuben Tucker, details how ANZ is using blockchain in three areas to reduce admin and double handling.

It is working with other banks in New Zealand and abroad to test blockchain projects in the cross border payments space, to assist with anti-money laundering (AML) compliance and to standardise bank guarantees.

Tucker says not every problem needs a blockchain solution, but where having a common source of truth is key, blockchain can be helpful.

So what exactly is blockchain? It’s a digital ledger that chronologically records transactions, allowing all parties on the blockchain to keep track of these without central recordkeeping. There is a consensus mechanism that enables parties to transact without going through an intermediary.

Streamlining cross border payments

ANZ and Wells Fargo in March 2016 launched a shared distributed ledger that provides the various banks involved in a cross border payment greater transparency around the transaction.  

Tucker explains: “Generally when we [ANZ] make a payment, we’re not just making your payment, we’re making thousands of payments in very large batches.

“The complexity involved is the bank at the other end working out which part of that bulk payment is related to the underlying cash flow that is part of your transaction, and how do we get that to the account you want that to go to.

“The quicker two banks can talk across borders to work out where it’s coming from and to, the better. Blockchain is great at doing that.

“It’s a single source of truth between two parties, and ultimately any party that wants to be part of that transaction.”

Tucker says the other complexity moving money across borders is that there aren’t only two banks involved - rather there could be dozens.  

“So that trusted central source of truth needs to exist. This is where the concept within blockchain, of a decentralised ledger, public access to information becomes really important.”

There are currently 33 banks testing the technology, which will become part of a global payments initiative being rolled out by SWIFT - the global provider of financial messaging services.

Competing technologies

Ultimately, Tucker says, “None of these solutions work unless you get true industry adoption…

“A lot of what we’ve done has actually involved building the technology, but then also getting the involvement of other institutions.”

The difficulty is there are a number of other banks, organisations and financial technology firms trying to do the same thing.

For example, one of the most talked about companies in the world, Ripple, is selling its blockchain technology that connects banks when making cross-border transactions.

For banks to get the most out of the technology, Ripple is encouraging them to use its digital asset, XRP, as a liquidity tool.

While many of the major banks around the world have tested Ripple, Tucker says ANZ doesn’t have any projects underway with it.

He is “very excited” about the platform, but maintains banks need certainty around the value of the crypto-currency Ripple uses as a means of transferring value across borders.

The value of XRP has recently undergone similar price fluctuations to bitcoin.

Digital identities and AML compliance

ANZ is also testing blockchain technology to streamline its ‘know your client’ obligations under AML legislation.

The bank announced in October it had started working on a series of tests with JP Morgan and the Royal Bank of Canada to see how client information could be shared among different banks involved in a transaction, on the blockchain.

Tucker explains the Interbank Information Network project: “If we can verify that JP Morgan is aware of certain details around a customer receiving a payment that one of our customers is making, that can satisfy our requirements very quickly.

“If we can embed that into the blockchain, that transaction can happen at a far faster rate.”

Tucker says collecting the necessary information about a client to ensure AML standards are being complied with, can otherwise slow the speed at which payments are made.

He says using blockchain to have a common source of truth between parties is a good way of moving information.

Asked about whether he sees banks moving to essentially give people digital identities before governments do, Tucker says: “It can’t be any one player, it can’t be any one industry, it needs to be hand-in-hand with government, with regulators…

“The ultimate nirvana would be a single proof of identity for any individual on the planet. We’re probably some way off. But the path there would involve true collaboration - both within countries and across borders.”

Taking the paper out of bank guarantees

Finally, ANZ is using blockchain to digitise the bank guarantee process used for commercial property leasing.

In July last year, it announced it had teamed up with Westpac, IBM and the Australian owner of Westfield shopping malls, Scentre Group, to essentially introduce technology to do away with paper-based bank guarantee documents.

Tucker explains: “So you’ve got three parties in the transaction - a landlord, a tenant and a bank that sits in between. Usually there would be paper moving in all different directions.”

However an agreement between the parties, with set terms and rules, can be embedded into the blockchain.

This would make the contract unalterable, reducing the risk of fraud.

ANZ is now seeking broader industry buy-in to the technology, as it looks to commercialise it later this year.

Tucker concludes: “This is one of the great aspects of this technology as it evolves, is it’s open. It’s distributed, it’s very public and to get real outcomes, we need collaboration.”

*This article was first published in our email for paying subscribers early on Wednesday morning. See here for more details and how to subscribe.

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The blockchain offers a new opportunity for a hacking target. No doubt any problems will take years to unearth.

... if nothing else , Bitcoin is demonstrating how easy if is for some people to hack their blockchain technology ...

Which is great ... if you don't own Bitcoins ... 'cos we're all gaining knowledge of the weaknesses of the system , and how to overcome them ...

Your comment shows you know nothing about Blockchain technology

Actually that would be your comment. Most the blockchain solutions are using lower levels of cryptography than many payment companies and sensitive services do now. Check the cryptography code. What's worse is that it is far more susceptible to endpoint hacks with little ability to reverse faulty transactions. Now if this were say money you were talking about it would be nice to have some insurance or backup in a case of an org or customers money lost in a hack. What the exchange hacks have shown is it can be surprisingly simple not only to hack and walk away with millions (that even some of the largest companies do not have full or even partial 1-1 cover), but also many exchanges and developers may cause wallets to lock out millions just because of a faulty update that was not simply tested off the live environment first. You would almost think the meltdown & spectre hacks would have alerted you to the fact that when there is only a single key used as protection then it is quite easy to capture it. Hence cold storage wallets and paper. You cannot "hack" paper, although you can burn, flood, wear, lose, & copy it. Even the hardwallets on remote devices are limited by the tech and still can equate to a single key being captured during a trade. All hackers need is a faster transaction to be approved as valid before yours, do you want to gamble they will have a better kit, mining & exchange access than you. Heck if you do not have multiple custom filter adblockers installed now set for all variations of mining code you likely have been used for cpu mining already.

So the bankers want to use blockchain to reduce "admin and double handling" they needn't worry as they will all be out of a job soon....

Of course the banks don't want an open cryptocurrency that is anonymous, convenient and limited in supply.

... pssssst ! .... hey you .... yes you !!!

Wanna buy some limited release Gummybeariums ? ... for a measly $ Million I'll slip 100 into your Bilbo baggings .... 'cos I'm generous like that ...

... they come with a free set of Gingzhu steak knives !

limited as in you can enter a name into a forking website form and generate another 20mil of them. Or how about the loss due to dust. If you cannot trade in dust or basic payments then it has failed as a day to day currency and with the volatility it has failed as a store of value. It is for pure speculation, you cannot beat the HFA traders in the no hold barred fight in the wild west of the cryptocurrency market. You might as well admit the whales & exchanges milking billions off their customers are the real winners of the day. Banks at least have boundaries and regulations holding them to legal operations.
https://www.youtube.com/watch?v=V43a-KxLFcg

Why would I use a retail bank like ANZ when platforms like OzForex give me far better rates on forex? I can purchase the foreign exchange immediately. Not sure why Blockchain is such a big deal for most people.

It is a fashion, it is a massive speculation market that commercial investment turned into a bubble, it can be applied to a few complex decentralised transaction applications, (although that number is a parred back subset of the total due to blockchain tech constraints), and if you add it to your company name the stock price can jump magically. An opportunity for movie rental company to rise again as Blockchain Blockbuster.

Most users would not see any end difference in their services whether they are run on servers using a blockchain or a server pool with multiple database servers. In fact most users barely see beyond a graphical user interface. So for the end user the main focus is security, cost & time to market for new features, and how shiny that user interface can be. No customers really complain about which distro of Linux & what database their currency trading/payment company uses, so same old. On the backend though it is all about the secure transaction version control. So you can see all historical states. Many secure database server pools can do this with good engineering but with blockchain it is out of the box, no need to pay for good engineering. So that is a benefit to many companies. Management fail often however to think that out of the box is all they need so it is up to the engineers to shoehorn that square peg into a round hole.