FinTechBlockchainBanking blockchain developments driven by customers, says Commerzbank

Banking blockchain developments driven by customers, says Commerzbank

Why is blockchain such an attractive proposition for Commerzbank and its customers?

Commerzbank has recently completed a pair of successful blockchain-based transaction trials. The first – a money market security transaction between the bank, Continental and Siemens – and the second – a commercial transaction via blockchain-based trade finance network Marco Polo – highlighted how the German banking and financial services company is driving development of blockchain solutions.

But why is blockchain such an attractive proposition for Commerzbank and its customers? According to Michael Spitz, CEO of the main incubator at Commerzbank’s R&D unit, the technology has four main areas of focus based on the feedback and interaction with corporate clients. They are:

  1. Cash on ledger (not crypto currencies)
  2. Identities
  3. Trade finance
  4. Capital markets

“We see a lot of applications of cash on ledger both in trade finance as well as capital markets,” says Spitz. “Looking at capital markets, we managed to develop a distributed ledger technology (DLT) solution in the areas of new issuance, secondary trading – including repo and derivatives – and the FX space, including forwards.

“DLT, together with other emerging technologies, allows us not only to digitize existing processes but redesign them, reduce risk and complexity, add transparency and reduce costs.”

Spitz continues: “Looking at supply chain and trade finance, we are particularly excited about the possibilities of sensors and Internet of Things. We are working with leading medium-sized companies and large corporate clients of Industry 4.0 on the provision of payment solutions for machine to machine transactions. These could be self-driving vehicles at electricity charging stations, for example.

Work in progress

While banking blockchain technology is clearly developing rapidly, Spitz admits that mainstream adoption is still a way off – even if Commerzbank plans to roll out the first projects later this year.

When asked what’s holding back the adoption of the technology, he replies: “It is still work in progress as we have various solutions in various stages, some in the research stage, some in pilot phase and we expect the first projects within this industry to replace legacy systems this year.

“Financial services is a regulated industry that does not match well with a ‘fail fast culture’ as we are often dealing with other people’s money, so it takes time to develop solutions which clients and regulators are comfortable with. “

In order to overcome these barriers, Spitz suggests more needs to be done by banks to engage with clients to outline clear benefits and – of course – test.

Impact on treasury

Interestingly, Spitz is clear that treasurers do not ask specifically for blockchain solutions. However, he says, they are looking for fast, reliable, affordable and transparent solutions to support their business and enable them to fulfil their corporate strategy and mission. “Blockchain falls into this category and allows processes to be accelerated, while delivering the required transparency. It’s a transformative technology.”

In conclusion, when asked what skills treasurers need to be ready for the ‘new era’ of payments, Spitz answers: “For me, treasurers need to remain curious and try to imagine what innovations would be useful to their roles in 10 years from now – that will help them. There’s also a need to embrace diversity in order to foster innovation. Together, these will ensure treasurers embrace technology like blockchain for the good of the profession.”

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