The “intelligent transformation” of commercial banks in China is accelerating. Smaller and less efficient branches are being abolished and being consolidated into large and complete outlets focusing on lighter and smarter services. To further improve their competitive advantage, many banks made it clear that they would invest heavily in financial technology, where blockchain technology is gradually being applied.
According the Securities Daily, the five major banks (ICBC, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications) have started the research and development of blockchain projects. Individual projects have been put into operation and mainly applied to areas such as poverty alleviation, financial fraud and trade and further digitizing of invoices and applications such as renting houses.
Sun Yang, director of the Financial Technology Research Center of the Suning Financial Research Institute, admitted in an interview with the Securities Daily that the banks’ research is not a gimmick, but focused on the practical application of blockchain technology. Goal for these traditional financial institutions to use blockchain is to improve the efficiency of financial services and prevention and control of financial risks.
The big five have entered the blockchain era
Up to now, the five major banks have entered the blockchain era, whereas all banks slightly differ in the way they aim to use blockchain.
Recently, the China Internet Network Information Center (CNNIC) released the 43rd “Statistical Report on the Development of China’s Internet Network”. The report pointed out that in terms of technology research and development, Bank of China and ICBC ranked highest among Chinese banks.
The Securities Daily reporter found that the Bank of China’s embrace of blockchain is most active and comprehensive, from blockchain technology and patents, to cooperation with BAT giants, and to the application of blockchain technology in the industry.
According to the statistics of the global blockchain enterprise patent rankings in 2017, the Bank of China had 11 patent applications for blockchain, ranking first in the domestic banking industry.
In 2019, the Bank of China moved frequently into the blockchain industry. Recently, some media reported that the Bank of China decided to join a real estate trading platform based on blockchain technology and will become the first bank to use the platform.
According to statistics from Suning Financial Research Institute, Bank of China is currently exploring blockchain solutions for cross-border payments, SWIFT payments, public welfare and social security, housing leases, and valuation of blockchain based mortgages.
The “Securities Daily” reporter saw in the 2018 semi-annual report of the Bank of China that it emphasized that the application of blockchain and artificial intelligence technology will be deepened in the future, and the integration of new technologies and services will be actively promoted.
Unlike the Bank of China, the Agricultural Bank seems to be more focused on serving rural areas when it comes to innovative applications. According to public information, in August 2017, ABC and Fun Chain Technology cooperated to launch a blockchain-based agricultural e-commerce financing system – “e-chain loan”. Sun Yang believes that “agricultural banks are more focused on rural areas, and in the future it is more likely to achieve blockchain depth in the three rural areas.”
Among the five major banks, ICBC has been very active in innovative technologies. According to public information, in early 2017, ICBC participated in the research and development of the central bank’s digital currency and the blockchain-based digital invoice trading platform. According to its 2018 semi-annual report, ICBC used blockchain technology to create a cross-level level transfer tool for ICBC, “ICBC e-letter”, supporting core enterprise credit extension to SMEs at the end of the chain, and building application scenarios based on blockchain. In addition, in cooperation with Xiong’an New Area, the operation of blockchain technology in the 10,000-acre pilot zone realizes project fund management and realizes the construction of a digital and smart city.
Compared with the above three banks, China Construction Bank’s (CCB) exploration in the blockchain is not so eye-catching. According to its 2018 semi-annual report, CCB provides full-line and short-process financial services for cross-border e-commerce and foreign SMEs involded in international trade. It will launch a “blockchain trade finance” platform to realize domestic letter of credits and cross-border payments.
Lastly, Bank of Communications is focusing on “payment settlement + trade financing” to build an integrated service for the entire chain, both online and offline, relying on the “Internet +”, blockchain, big data analysis and other technologies. The semi-annual report of 2018 shows that in the first half of last year, Bank of Communications handled the bank’s first blockchain domestic L/C, and many branches have already started business through this technology.
Meng Zhaoli, dean of the Jingdong Institute of Digital Science and Technology, believes that the characteristics of the blockchain will change the core principles between the financial systems. Blockchain technology must not be neglected in the process of traditional financial institutions continually deploying financial technology to gain their future development in the industry.”
Blockchain layout tends to cooperate and create a win-win
Sun Yang emphasized that due to industry characteristics, the banking industry uses blockchain in rural finance, supply chain finance, cross-border payments, and financial asset trading platforms to create innovative applications.
Meng Zhaoli believes that the use of blockchain technology will gradually change the trajectory of banking development. Breakthroughs in the financial industry will happen in the field of risk management systems, efficiency improvement, cross-border payments and settlement and digital invoices.
According Meng Zhaoli, banks will tend to cooperate with tech companies (such as Baidu, Alibaba and Tencent) with mature technical capabilities when deploying blockchain technology. On the one hand, they can transform traditional banking services based on their technical strength; on the other hand, they can cooperate with internet companies to develop new businesses.
However, Sun Yang told the Securities Daily that banks not only tend to unite with these internet giants, but also hope to be able to unite with traditional enterprises. Many banks and traditional companies have jointly developed blockchain applications, such as animal husbandry, winery product traceability, and retail supply chains.
Overall, blockchain will help the banking industry to build an inter-bank financial asset trading platform through alliance chains and smart contracts. In the long run, complicated and time-limited financial asset transactions will be completed instantly. Ultimately, blockchain technology may help banks enter into businesses that they have not dared to do or dare to expand, such as movable property pledges, rural finance, supply chain finance, among others.