Indian Bank removing friction in business transactions using blockchain technology

By March 31, 2017Blog, Finance

Guest post: Rajendra Mhalsekar, President, Head, Corporate Banking Technology, YES Bank  

Blockchain technology is poised to disrupt nearly every industry from key players to core functions – and the banking and financial markets industry is at the forefront. In a recent IBM IBV Study, 15 percent of banks and 14 percent of financial market institutions said that they intend to implement full-scale, commercial blockchain solutions in 2017. Mass adoption isn’t that far off either, with roughly 65 percent of banks expecting to have blockchain solutions in production in the next three years.

India’s fifth largest private bank, YES BANK, is among the first wave of institutions around the world to publicly announce innovation in payments using blockchain and cognitive technologies. Collaborating with IBM in 2015, it was the first bank in India to have launched API Banking services, which is a technology protocol allowing one access to the bank’s transaction processing services from an ERP environment in a secure manner.

Making use of blockchain technology

By capitalizing on the efficiency and security features of blockchain, YES BANK has used Hyperledger Fabric to design an innovative supply chain financing solution. It will aim to reduce the turn-around-time for an invoice to payment cycle from the current 60 days to near rapid real-time processing. This will help recognize enhanced efficiencies in terms of cost as well as resources.

Using the Hyperledger Fabric 0.6, YES BANK is working to implement a permissioned blockchain network. This means that each node, or network participant, is required to prove its identity as a member of the network, thereby helping banks to maintain transaction anonymity on the shared ledger while retaining confidentiality of the contract between business users.

Helping resolve YES BANK’s payment challenge

The blockchain solution helps YES BANK resolve complex vendor payment issues. For instance, the bank’s vendor financing solution allows its client Bajaj Electricals to digitize the process for the discounting and disbursing of funds to its vendors by seamlessly integrating with the bank’s systems. The integration of both upstream and downstream systems offering automated processing of transactions greatly reduces the need for manual intervention with the help of YES BANK’s API Banking.

Governing these transactions, the business logic and rules are now captured in a specifically designed “smart contract” chain code. Furthermore, implementation uses a superior Cryptokey, which offers state-of-the-art security for both documents and transactions on the Blockchain. Therefore, YES BANK helps ensure the Financial Supply Chain is more robust, secure and seamless, offering a great customer experience and making a significant impact on the overall Global Transaction Banking space.

Blockchain aims for transparency

Blockchain technology ensures maximum transparency because of its structure, which does not allow for data to be altered by any one party, and works in append-only mode (meaning that records can only be added, not deleted or changed further back on the chain). This allows banks to more accurately track customer payment histories, across borders and banks, reducing the risk of defaulters.

With the recent focus on the financial industry where fintechs and banks are collaborating to make user experience more positive, the transparency in the system will go a long way to transform transactions.

A key consideration with the advent of blockchain technology in business is the regulatory climate. In India, government regulators are already beginning to embrace this technology, and the Reserve Bank of India acknowledged that blockchain has potential to transform India’s financial markets especially because of its inherent security and ability to combat counterfeiting.

Looking forward

YES BANK is aiming to have a transparent decentralized ledger wherein the bank and its customers are aware of every block of information updated, thereby reducing discrepancies between the bank, its end users and vendors, allowing “auditability with accountability” for all. With blockchain technology helping to remove much of the friction in business transactions, it can be instrumental in transforming processes to ensure a better experience for all involved in its network.