Axis bank, India’s third largest private sector lender, is looking at using Blockchain for cross-border remittances. Amit Sethi, CIO, Axis Bank, tells Abhishek Raval, why the bank is bullish on the immense potential of this technology
What are the intended benefits of Blockchain?
Let me explain this with the help of an example. Today, there are a lot of pain points as far as remittances are done today. They can take for upto five days to take a credit. The final rate decided by the bank to be given to the receiver depends on the spot rate on the day the money is to be received. There is uncertainty regarding this. Also there are a lot of arrangements like Rupee Drawing arrangements (RDA), Vostro accounts that the banks have to make between themselves for remittance delivery. This leads to pain points in making international remittances. If you were to look at all these three issues and try to come out with a solution, the current setup of remittances will not give you that solution, You will have to come out with something which can enable these things and what better thing than a technology enabled solution and that is where Blockchain comes in.
The Blockchain technology gives you an instantaneous settlement compared to the traditional channels like SWIFT or any other channel that people may use, where it can take upto 5 days or so for settling a transaction. So it’s an instantaneous transfer. The money reaches in seconds to the receiver. The second part is better customer experience because you get the confirmation of the conversion rate, which you will receive in the country of acceptance or delivery of that particular amount. There is no need to wait for 5 days to figure out the final amount. The final amount is known at that very point in time. In the future, it may remove the need for having a correspondent banking arrangement between banks. If you join a network like the Ripple network that we have joined, it automatically makes you a part of the network thereby doing away with having formal arrangement. That may be futuristic as of now. But it will happen once the Blockchain network becomes popular and that would be a paradigm shift in the way the banking relationships happen. It’s a leapfrog change in the way international remittances happen currently. That is the way remittances will happen in the future. They will happen on the Blockchain route because of the huge advantage over the current mechanism.
How can this technology reduce costs?
Blockchain reduces a lot of operational costs for banks. Once you are processing a particular transaction which is coming from remittance, you have to recognize those transactions in SWIFT messages, then go to the customer and ask for what is the use of this particular transaction and how do I settle it, where do I put the money. It’s a very complex and cumbersome operation today. WIth Blockchain, it becomes instantaneous. It’s almost like a STP transaction, which is where it will help in reducing the overall cost of transaction. For the banks and for the customers. it’s difficult to gauge the amount of cost reduction but once it becomes mainstream, it’s all a volume game. Once the remittance numbers increase on Blockchain, banks can even start dismantling the operational costs. This will have a big impact on the costs.
Why did Axis bank use remittance as the first use case ?
Remittance is a volume business. It touches both the retail and corporate banking environment. So, the impact is bigger compared to doing it for a closed user group in a corporate network or using it for only trade. So a larger base of customers and transactions can be targeted in a single stroke. Even globally, banks are choosing remittances as the first transaction type to be done using Blockchain. It is aking significant business sense for the corporations.
Which are the other use cases that you are evaluating for Blockchain?
The first one is trade finance, where you can actually use Blokchain from order placing to invoicing to making payments. Eventually, the next step would be to digitize the shipment and the custom documents which are required. Once all this is done, then the trade finance can be done totally seamless. It can remove a huge amount of paperwork, which goes into any kind of trade finance or shipment. The condition here is that the shipping, customs and regulatory authorities should be on a single digital platform. It can also be used for invoice financing or bill discounting. Nobody can use the same document again. The collaterals given to banks can be put on a Blockchain.
From a security point of view, how do you see Blockchain?
It’s a very secure network because it’s a closed user group, where there is a mechanism to verify the transactions. There is not just one party that verifies it. There are multiple nodes or people who validate a particular transaction. This is not done physically, but it happens in nano seconds. It’s a much better way of securing a transaction rather than relying on just one party. The record is also placed on a distributed ledger, thus its non repudiable, and much more secure vis-a-vis other networks.