Blockchain and banking continue to push new boundaries with the relatively untested technology offering lots of promise and potential, but not finding too many direct uses, as of yet. HSBC, one of the largest banking and financial services organizations in the world, headquartered in London, is planning on making a bold $20 billion step.
The bank will be shifting $20 billion worth of assets to a new blockchain-based custody platform by March. This is a vast improvement of the previous system as the HSBC platform will digitize paper-based records of private placements.
Private placements are typically held on paper and lack standardization which not only makes accessing them difficult and inefficient but also points towards an archaic and out-dated system.
Using blockchain to reduce the time it takes investors to make checks or queries on holdings, the new HSBC platform, known as Digital Vault, will give investors real-time access to records of securities bought on private markets.
Currently, the bank looks after up to $50 billion worth of the assets, so it is taking a big leap of faith by putting 40 percent of this onto the blockchain platform.
Not only is this a big upgrade for private placements, but it is also a necessary one in an avenue that is expected to grow and be more attractive to investors steadily. Demand for private placements of both debt and equity has grown significantly in recent years. Investors are on the hunt for higher returns amid low interest rates worldwide.
HSBC expects the global value of private placements to hit $7.7 trillion by 2022, a jump of 60 percent from five years earlier. Over the same period, it thinks allocations by asset manager clients will grow to 20 percent from 9 percent, it was reported.
It has become apparent with the emergence of blockchain technology that there is a lot that can be gained for banks should they choose to adopt the dynamic technology. The likes of JP Morgan have gone from slating Bitcoin to creating their own cryptocurrency.
It is instances like this that show how important modernization of certain aspects of the banking sector has become. The use of paper record-keeping for assets that amount to $50 billion is extremely beneficial. Banks are now starting to realize that the next step in this evolution is not taking what’s on offer, it is about setting a trend.
HSBC’s decision to put $20 billion worth of assets onto blockchain technology is being heralded as one of the biggest deployments to the transparent and instantly available technology. But, its success will not be immediately visible, according to Windsor Holden, an independent consultant who tracks blockchain and cryptocurrencies.
“I wouldn’t expect to see huge savings, or huge efficiencies announced in the first year to 18 months,” he said.
Author: Darryn Pollock