How high-tech blockchain is creating new payment opportunities
A time to experiment
In the eyes of Santander’s corporate Innovation Group, which I lead, the year 2015 stands as a kind of turning point in the way the industry was looking at innovation. There was, in many ways, a deepening awareness that there were technologies coming onto the scene that would change the banking environment fundamentally and permanently.
Not entirely coincidentally, the year 2015 also marked the creation of Santander’s blockchain laboratory. As with all such initiatives, the aim of the blockchain lab was to provide a forum for free, tire-kicking experimentation that would eventually trickle down to our core lines of business.
A time for real solutions
Today, with three plus years of experience behind us, the lab has undergone an evolution of mindset on blockchain. Where once the focus was on the “technology” of blockchain—such as which protocol will emerge as “victor” in the marketplace—the maturation of blockchain has shifted the focus to the use case. What’s driving this new perspective on blockchain is simple: big corporate banking customers are increasingly clamoring for it to solve real problems.
Take global liquidity management. Moving money around the world may look easy, but looks can deceive. Corporate customers often have a large number of bank accounts, spread across multiple entities, in different countries and denominated in multiple currencies. At a basic level, efficient liquidity management means knowing how and where to consolidate and pool cash. The challenge: the parameters that govern these decisions are complex, especially when involving foreign exchange.
Blockchain payments: opportunity beckons
Santander’s blockchain lab also saw a huge untapped opportunity in facilitating payments for individuals, especially in those parts of the world where traditional payment infrastructures are lacking. Consider that of the roughly 7 billion people in the world, only about a third have such access. That translates into a market opportunity of 5 billion people who have thus far been very hard to reach.
To seize these opportunities, Santander’s blockchain lab is actively developing payment solutions based on blockchain’s distributed ledger technology. In April 2018, Santander became the first bank to offer an international payments service—known as Santander One Pay FX—using blockchain-based technology. The app enables retail customers in Spain, UK, Brazil and Poland to complete international transfers on the same day or at least by the next day, while for conducting traditional wire transfers, from three to five days are needed on average.
To address the payments opportunity for corporate and investment banking, Santander’s blockchain lab is piloting a new service among approximately 20 of its customers.
Driving trade by lowering risk
While these initiatives focus on distributed ledger technology, Santander—through its participation in the we.trade consortium—also offers its services based on blockchain’s smart contracts capability. Many banks and companies are looking for a more efficient and cost-effective way to trade internationally. The we.trade solution, built on the IBM Blockchain Platform, powered by Hyperledger Fabric technology, offers banks’ customers access to a user-friendly interface by leveraging innovative smart contracts, and opens up potential new trading opportunities.
Companies and SMEs can negotiate and complete orders, establish the terms of the trade agreement and access the financial services offered on the platform with complete security and trust in the knowledge that the company in the other country is a reliable and proven customer of a we.trade partner bank. The service is completely traceable and fast, and transactions can even include bank payment undertaking, which removes all default risk, something that until now discouraged some companies from engaging in international trade. We think it’s a real game-changer.
I think that once we realize this vision of blockchain technology, Santander will look different. Of course, we’ll have the same commitment to helping our clients prosper. But our clients’ needs are changing and we have to change to meet those needs.
Hear Juan Jiménez Zaballos talk about the a-ha moment in applying blockchain for cash management: