South African Banks Expect Breakthrough Blockchain Year

South African banks are looking to increase their investments in blockchain and distributed ledger technologies this year, reports IT Web, South Africa. 

The blockchain holds the promise of bringing greater efficiency and transparency to the banking industry. By investing in blockchain technologies, they will be able to bring more innovation to the market.

However, they note that one of the biggest challenges is on the regulatory front, as with any emerging technology.

A recent Deloitte study reveals more than 95% of respondents surveyed affirmed they would make some level of investment in blockchain or distributed ledger technology.

For instance, Absa is investing significantly in a range of democratised computing technologies, including distributed ledger technologies (one of which is blockchain), several of which will promote financial inclusion by providing greater access to banking services. Absa Group Limited, originally Amalgamated Banks of South Africa, is a South African-based financial services group offering personal and business banking, credit cards, corporate and investment banking, wealth and investment management, and bank assurance.

“In particular, Absa continues to invest significantly in technology and innovation in the payment space, where we have pushed the boundaries in the past. Several concepts are currently in development in the area of distributed ledger, including blockchain technology, and we are working with the best minds in this space to bring new products and services to life as we look to become a more digitally-powered business.”

Open co-operation

This month, Absa became a member of the Hyperledger Foundation to expand its knowledge and network in the global distributed ledger community and broaden its understanding of the use of technology in the financial services sector.

Hyperledger builds enterprise blockchain ecosystems through global, open-source collaboration.

Absa also notes it is at the forefront of the development of self-sovereign digital identity, which incorporates distributed ledger technology.

The Standard Bank of South Africa Limited is a major South African bank and financial services group. It is Africa’s biggest lender by assets. Ian Putter, blockchain lead at Standard Bank Group, says the financial institution has seen several emerging technology use cases, including cross-border payments, remittances, and electronic fund transfers.

“We are working on scaling a lot of initiatives that we started last year and try to use them a lot wider. We are also looking at new opportunities. So definitely, we are going to increase our investments in blockchain, distributed ledger technologies and similar technologies, given the work that we have done over the years.”

Putter says people need to comprehend or understand the technology.

“A lot of people thought it is a solution looking for a problem but it’s actually a brand new, unified type of decentralised architecture where a lot of applications run seamlessly. Using blockchain, you can also track and trace transactions in real-time. People struggle to understand that and that’s always the case with new technology.”

He points out there will always be people biases towards the technologies they are familiar with. Getting regulatory compliance for new technology is another challenge, adds Putter.

“You have to make sure people are aware of all the risks – it’s not all about getting benefits when you implement a new technology. Even though this is revolutionary and proactive type of technology, you need everyone to understand it.”

Trust is central

Nedbank Group is a financial services group in South Africa offering wholesale and retail banking services and insurance, asset management, and wealth management. Nedbank is also looking to increase investments in the space. Some of the biggest use cases in adopting blockchain technologies include the exploration of central bank digital currencies (CBDCs) by the South African Reserve Bank and the efficiencies the adoption of this technology stack can potentially bring to the banking settlement processes.

South Africa recently announced a trial of CBDCs for cross-border payments that could motivate other financial institutions worldwide to work towards using the technology.

Says Nedbank: 

“The current innovations in the blockchain and crypto-currency ecosystem are vast. From a purely technology perspective, blockchain and smart contract technologies have the potential to introduce great efficiencies in current financial value chains, like trade finance, for example.”

Nedbank’s challenges with adopting the technology include 

  • understanding the regulatory requirements in this space, 
  • obtaining the correct resources to implement and integrate into these ecosystems, and 
  • ensuring customers and staff are educated in this new asset class 

while ensuring risk, compliance, and legal reporting models are not compromised.

Rand Merchant Bank (RMB), a division of FirstRand Bank Limited, is a leading African corporate and investment bank and part of one of Africa’s largest financial services groups. RMB Holdings Limited (RMBH), previously known as Rand Merchant Bank Holdings, is a South African diversified financial services holding company. RMB is also looking to increase blockchain investments.

Christiaan du Preez, chief information officer for banking at RMB, says a blockchain solution brings the element of trust among participants in the network.

“However, blockchain should not be seen as a solution looking for a problem. It is not about the technology, but the value it can deliver to our clients or their ecosystem. However, we do believe it is prudent to stay close to all emerging technologies, given the ever-changing client reality.”