What’s cooking in the blockchain kitchen?

26 January 2017 ... min read

26 January 2017

One day, blockchain may change the face of the financial industry – and of many other industries. When that day comes, ING wants to be ready. Here’s a first taste of what might be coming.

Mariana Gomez de la Villa and the Blockchain Innovation team: “2016 was about experimentation and getting to know the technology.”

Mariana Gomez de la Villa and the Blockchain Innovation team: “2016 was about experimentation and getting to know the technology.”

Take technology, innovation, customer needs, creative minds and a diverse team of mathematicians, cryptologists, economists and business experts, mix them together and you have the recipe for new ways to improve the customer experience with blockchain technology.

Also called distributed ledger technology, blockchain (see box-out) was the innovation buzzword of 2016. It enables people to exchange electronic currency ‘peer-to-peer’, cutting out middlemen such as central banks, governments or online payment systems.

Blockchain captured the imagination of financial institutions everywhere. It is the task of ING’s Mariana Gomez de la Villa, Senior Program Manager Blockchain, and her Amsterdam-based Blockchain Innovation team to translate this potential into practical applications that add value for ING, customers and even the entire financial institutions ecosystem.

But as any chef knows, creating a culinary masterpiece is a long and tedious process of experimenting with tastes and ingredients. Before a dish is perfected, many early versions end up in the bin. The same is true for Gomez de la Villa’s team.

“For us, 2016 was about experimentation and getting to know the technology: how it works, how we can use it and what the pitfalls and limitations are. This technology wasn’t built for the financial industry so there are constraints and it doesn’t always cover our requirements,” Gomez de la Villa explained.

Proving the concept

During this test phase, the team worked on 27 proofs of concept in six business areas: payments, trade finance and working capital solutions, financial markets, bank treasury, lending, and compliance and identity.

One, for example, applied blockchain to the ‘know-your-customer’ process, which can be costly and time consuming. Working with 10 other banks, they showed it could simplify KYC so customers only have to submit identity documents once rather than each time they open a new account, for example in another country. This increases transparency, security and cost-efficiencies for banks.

In trade finance, too, where processes are largely paper-based, labour intensive and open to fraud, a proof-of-concept was completed in August. It demonstrated that shared ledger technology could reduce operational and compliance costs of trade financing by 10 to 15 percent and increase bank revenues by as much as 15 percent.

Last Friday, news hit the wires that ING Bootcamp winner Easy TradING Connect, trading house Mercuria and Societe Generale are working on the first large oil trade using blockchain technology. This would be a breakthrough in digitising the tradition-bound oil industry.

You can’t do it alone

These are practical examples that Ivar Wiersma, head of Innovation at Wholesale Banking and responsible for Mariana’s team, wants to see more of this year. "Blockchain has the potential to profoundly change the financial services structure", Wiersma said.

He compares blockchain to that other ‘foundational technology’ that changed the world; the internet. It all started with the birth of email in the 70s, but it took decades before the internet became the basis for many of today’s business models.

“Blockchain started eight years ago with bitcoin. Now we need new developments like smart contracts and digital identity so blockchain can become the technology standard for the next generation.”

Wiersma added: “Collaboration is a given. It’s a network, so working on your own is useless. It’s like being the only one with a mobile phone.”

In 2016, ING worked with partners inside and outside the Bank, including consortiums such as R3, fintechs, the Dutch central bank, the Dutch Payments Association and the European Banking Forum. The cooperation varied from raising awareness of blockchain to developing proofs of concept.

Stepping stones

While the sector looks for ways to set this new standard, ‘use cases’ like Easy TradING Connect’s oil trade should prove that the technology works. Ivar wants the development team in 2017 to zoom in on five to six of these cases.

“We will introduce more of these pilots and tests that make clients enthusiastic. Not every pilot will be a home run, but that’s OK. I see them as stepping stones, showing us what’s possible.”

Even on a small scale, things can get complicated, Gomez de la Villa knows, as it’s about much more than just the technology.

“Each solution should comply with many more areas: performance and scalability, the regulatory and legal framework, privacy and confidentiality. That’s also why collaboration with the business and external partners is so important.”

So yes, it will take time before blockchain becomes part of everyday life at the Bank. Meanwhile, ING’s blockchain kitchen is buzzing with activity, and the first appetisers are about to be served.

To discuss the big things ahead, the team hosts blockchain workshops with colleagues, business partners and other stakeholders; recently even with EU commissioners and the European parliament. They also share insights with customers in other sectors, such as utility companies, notaries and payment service providers, who can all benefit from blockchain technology.

“It’s part of our responsibility as a leading bank to share our knowledge and vision with them because whatever we do, we’re doing for them too,” said Gomez de la Villa.

What is blockchain?

Blockchain is a shared distributive ledger that is not controlled by a single user but by all in the chain. Devised by Satoshi Nakamoto in 2008, it enables people to exchange electronic currency ‘peer-to-peer’, cutting out middlemen such as central banks, governments or online payment systems.

“Banks still spend so much time on checking their version of the truth with those of other banks before carrying out or settling a transaction. With blockchain there’s only one source of truth, enabling us to serve clients better, safer, simpler, faster and cheaper,” said Ivar Wiersma, Wholesale Banking’s head of Innovation.

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