African countries are becoming increasingly open to visitors from across the continent, with most countries making “steady progress” in terms of visa openness, according to the Africa Visa Openness Index presented by the African Union Commission and the African Development Bank at the Africa Investment Forum (AIF) in Johannesburg last week.
Standard Bank to speed up forex payments with blockchain
South Africa's Standard Bank says it has found a blockchain solution to streamlining foreign exchange payments.
The bank, the largest in Africa, wants to make payments easier for its importer clients.
- It aims to use blockchain to short-cut the host of regulatory and system requirements involved in making a foreign exchange payment, most of which are currently handled manually.
Problems in making foreign exchange payments are most commonly encountered in “the first mile”, says Richard de Roos, head of foreign exchange at Standard Bank in Johannesburg. So the bank decided to “build a blockchain around what doesn’t work”. The idea is to use blockchain to get over the first mile, before sending the payment on to an existing settlement provider, such as SWIFT.
The bank’s initial focus is on importer payments for small and medium-sized companies in South Africa. And it expects its private permission system will enable clients to make payments to China more efficiently.
- The bank is in talks with Industrial and Commercial Bank of China (ICBC) – which owns 20% of Standard Bank’s shares – on making their respective blockchains interoperable.
De Roos says the “step approach” of building interoperable, rather than end to end, payment systems is a faster and more practical solution. “You don’t build siloed blockchains,” adds Ian Putter, head of unified finance development and innovation at the bank. “Interoperability is the new paradigm.”
Alexandra Giannopoulou, a postdoctoral researcher at the Blockchain and Society Policy Lab at the University of Amsterdam, argues that interoperability remains problematic from a legal point of view.
- Different regulatory frameworks will need to be taken into account to make the system legally compliant, she says.
Steve Wilson, vice president and principal analyst at Constellation Research in Silicon Valley, California, also sounds a note of caution. “There’s nothing special in blockchains that make interoperability any easier than it is with legacy networks,” he says:
- Blockchains only work to reach agreement on the state of a ledger; they don’t deliver consensus on what things mean.
- Larger questions like the meaning of entries, the off-chain commitment of parties to a contract and the correspondence of ledger entries to real world assets remain management issues that no blockchain solves.
- Technology is only a small part of any business transformation, and processes, management, personnel, rules and culture are the larger part. “Blockchain doesn’t change that old saw,” Wilson says.
Wilson agrees with JP Morgan’s chair of global research, Joyce Chang, who told Bloomberg in January it would be three to five years before blockchain had a meaningful impact on global payment systems.
“Rome wasn’t built in a day. Rome won’t be torn down and rebuilt on a whole new platform for many years,” he says.
Standard Bank is confident that it is arguing from a position of experience and that there is a clear economic rationale for the project. “We’ve physically done it and can see it,” Putter says.
Blockchain has the potential to integrate front, middle and back offices, and increase transparency and collaboration, Putter argues. He notes that current payment failure costs are high, and can affect the reputation and credibility of payment issuers. He sees significant cost savings from the project, for example in terms of compliance, and expects the private permission network to be live by the end of March.
Bottom line: If Standard Bank is right, the project will not only point a way to faster blockchain adoption for payments, but will enable the bank to cash in on burgeoning trade between China and Africa.