Adoption of Blockchain by Banking Sector

Anubha  |  Mar 3, 2021

Bitcoin and other cryptocurrencies are on the path to building a successful parallel economy to the traditional government-backed and controlled economic system. It has evolved itself into a market of investors and merchants just like the conventional system. Actually, beyond the system are some use cases like DeFi.

Despite their popularity, cryptocurrencies have faced resistance from governments all around the world, which are skeptical for the use of these currencies causing apprehension about the associated risks among the users.

Though majorly avoided by governments, Wall Street banks have taken some steps towards adopting blockchain technology for its increased popularity among users, investors, corporations, and fintech competitors. Major players including JPMorgan, Citi Bank, and Goldman Sachs are exploring the technology behind cryptocurrencies like Bitcoin and Ethereum.

Where Does Blockchain Fit in Banking

In the banks' controlled economy, centralized databases are used as bank ledgers which are susceptible to cyber-attacks, downtimes, and delays. On the other hand, blockchain provides transparency and enables real-time fraud analysis and prevention. The blockchain ledger can provide a historical record of all documents shared and compliance activities undertaken for each banking customer.

The major drawback of slow and inefficient cross-border money transfer hamper the trust and safety in the system, majorly attributed due to the lack of transparency and consensus. This is because, with multiple parties involved in reconciliation, the task of identifying and addressing inconsistencies has been hampered by a lack of standardization, the use of fragmented communication methods like phone, email, and even fax, and the non-availability of a single version of the truth that both sides can rely on.

Blockchain Solutions Adapted by the Banking Sector

Lured by the promise of improving some of the sector’s oldest processes, several large banks are testing blockchain technology. Banks have so far mainly opted to take some of the principles behind blockchain, adapting the technology for different use cases to crypto.

Some of the initial adaptations of blockchain by the banking sector are as follows:


According to JPMorgan, the adoption of blockchain in banking is only a few years away. It has rebranded its blockchain-based Interbank Information Network(IIN) developed in 2016 as Liink. It is an enterprise-level blockchain solution to address delays in cross-border payments. JPMorgan is focused on relieving pain points in the world of wholesale payments by using blockchain technology. It believes that by combining many users or companies on one blockchain, or ledger, transactions can be done in near real-time with certainty, which will produce billions of dollars in savings. Traditionally, cross-border payments rely on a complex global web of correspondent banks in which payments sometimes get rejected for errors in the account information or other problems.

According to Takis Georgakopoulos, the bank’s global head of wholesale payments, another area is in processing paper checks, which relies on armies of people to handle mail at physical locations called lockboxes. That could be radically simplified with an exchange where the digital information associated with a check gets posted, skipping the mail altogether. He informed that using a version of the blockchain with the participants being the main issuers of checks and the main operators of lockboxes, it’s possible we can save 75% of the total cost for the industry today, and make checks available in a matter of minutes as opposed to days.

JPMorgan has developed Liink which is a mutually accessible ledger by permissioned banks. This uses Onyx’s blockchain platform. Onyx is a new business unit in the leading bank dedicated to building next-generation payment capabilities which acts as an umbrella for its blockchain and digital currency initiatives.

It is a platform for central banks and governments provisioning instant money transfers across borders, within minutes and seconds, by utilizing digital currencies on secure blockchains, transforming a global system that currently takes three to five days to complete transactions. Currently, it is joined by 25+ of the world’s top banks and 400+ leading financial institutions in 78 countries.

There are various applications on Liink for resolving compliance inquiries to communicate directly with counterparty banks to resolve sanctions screening queries on payments, to check that the formatting matches the country and currency-specific information required to make the payment, confirming account information to accelerate transactions by pre-validating account information and for digitizing payments to reduce inefficiencies experienced in legacy bill payment systems.

State Bank of India has recently joined Liink to increase the speed of customer transactions, including cross-border payments, and lower the costs.

Project Ubin

It is developed in collaboration with the Monetary Authority of Singapore and JP Morgan. It is joined by 40+ financial and non-financial firms, with 6 published projects. Project Ubin was created as practical experimentation to explore the use of blockchain and DLT for clearing and settlement of payments and securities. Partnering R3, a blockchain company, and a consortium of financial institutions on a POC to conduct inter-bank payments using Blockchain technology.


Spunta Banca distributed ledger technology solution, built on R3 Corda, is used by over 100 Italian banks for the processing of interbank reconciliation. In the first 6 months since its launch in March 2020, it has processed 204 million transactions with an automatic match rate of 97.6%, transforming the interbank reconciliation process.

Spunta Banca DLT is a private permissioned distributed ledger technology-based project for interbank reconciliation, promoted by ABI, the Italian Banking Association, and coordinated and implemented by ABI Lab, the banking research and innovation center. 91% of Italy’s banks now use the Spunta Banca DLT.

It streamlines and automates the reconciliation of transactions, improving governance of the overall “spunta” process, and moving from lengthy error-prone settlements, to real-time management of the reconciliation process. The next step will be to run the application at full capacity 24/7, with an estimated total volume of 8.4 billion transactions or more per year. 

Government-backed CBDCs

A Central Bank Digital Currency (CBDC) is an electronic form of central bank money that could be used by households and businesses to make payments. It is generally backed by blockchain or DLT technology.

Unlike bitcoin and similar cryptocurrencies are designed to be decentralized so that no company or government could control it, digital currencies are created by central banks to give governments more of a financial grip. Like traditional currency, the central bank must play a pivotal role in the governance of digital coins to guarantee the stability of value, to ensure the elasticity of the aggregate supply of such money, and to oversee the overall security of the system. In such a permissioned DLT system, a known network of validators replaces the traditional model with one central validator.

The Bank for International Settlements (BIS) has surveyed central banks around the world on their engagement with CBDCs. According to their survey, 86% of the 65 respondent central banks are now doing some kind of research or experimentation on digital currency.

A group of seven central banks of various countries, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank together with the Bank for International Settlements (BIS) have published a report in October 2020, addressing the use of CDBCs for resolving the challenges of cross-border payments. They have laid out some key requirements for central bank digital currencies to help central banks meet their public policy objectives.

Similarly, the Sweden government has started exploring the feasibility of having the country move to a digital currency. A review launched at the end of the year 2020 is expected to be completed by 2022. Sweden is among the first countries in the world to consider introducing a digital currency. Its central bank is already running a pilot project with Accenture to introduce an electronic krona based on blockchain technology. Its central bank, the Riksbank estimated that less than 10% of all payments are made with cash in Sweden. The Riksbank sees potential problems with the marginalization of cash and has therefore initiated a pilot project to develop a proposal for a technical solution for Swedish kronor in electronic form, an e-krona.

Bahamas has become the first country to launch a nationwide CDBC. It aims to spur financial inclusion by addressing the expense and difficulty of moving cash between the Bahamas' 700 small islands. The launch of the digital B$, also called the sand dollar, is to support a payment system using the Central Bank of the Bahamas. It is treated the same as a traditional Bahamian dollar which is itself pegged to the US dollar.

Recently, Mastercard has launched a prepaid card for sand dollar. With this Bahamians will be able to pay for goods and services using the sand dollar wherever credit cards are accepted, whether in the Bahamas or around the world.

On the other hand, the Bank of England is still evaluating whether to introduce CBDC. It emphasizes that any CBDC would be introduced alongside – rather than replacing – cash and bank deposits. the Bank of England is not sure if it will be backed by blockchain or DLT technology. It aims to provide programmable money through smart contracts.

Joining the trend, the Reserve Bank of India (RBI) is also examining if there's a need to introduce Central Bank Digital Currency (CBDC) in India.

Future of Blockchain in Banking

Once fully adopted, blockchain technology will surely supplement traditional financial infrastructure, making it more efficient. Its use is expected to process payments faster and more accurately, all the while reducing transaction processing costs. It would be a great and much-required help for the traditional banking institutions to compete with fintech startups.

It remains to be seen to how extent will the banks and governments embrace this transformative technology.

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