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.”

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