US Banks To Use Blockchain For Interbank Foreign Exchange Settlements
Banks have been one of the most vocal opponents of the blockchain and cryptocurrency industries, despite the latter’s ongoing growth. As the adage goes, “if you can’t fight them, join them,” and banks have done just that.
Blockchain technologies have shown to be particularly beneficial for the banking and payments industries, increasing the pressure on these sectors to change or face extinction. Seeing the utility of these technologies, banks have started to adopt blockchain technology gradually but steadily via different connections. Banks of various sizes have embraced blockchain technology to enhance their present processes.
HSBC and Wells Fargo said on Monday that they will use blockchain to ease interbank foreign currency payments. They want to do it using HSBC’s FX Everywhere technology, which was established three years ago in 2018. Both banks will be able to use blockchain technology to settle multi-currency foreign exchange transactions.
HSBC formerly utilised FX Everywhere for intrabank foreign exchange transactions inside its own banking system, but has began to broaden its usage of the service to include other banks. Wells Fargo is the first bank to sign on to this service, as HSBC expands its ecosystem.
Rather than relying on payment-by-payment (PvP) net settlement, FX Everywhere leverages the blockchain’s real-time transparency and payment capabilities. This technique helps to reduce costs via reduced transaction fees, as well as significantly reducing the settlement risks that are often connected with foreign exchange transactions.
HSBC has cleared about $2.5 trillion in intrabank transactions over the last three years. The platform has been shown to be effective and is now being extended to allow other institutions to take advantage of its advantages.
Mark Williamson, Global Head of Foreign Exchange Partnerships & Propositions at HSBC, commented on the partnership:
“The platform allows parties to settle bilateral cross-border commitments effectively across numerous onshore and offshore currencies, while also providing the extra option of prolonged settlement periods to maximise PvP risk reduction possibilities.”
The Major Players Are Following The Trend
Banks are not the only institutions making preparations for the future. Visa and Mastercard, two of the world’s largest payment companies, have also increased their blockchain connections for their payment systems.
Visa and Mastercard have teamed with cryptocurrency companies to develop a variety of crypto cards, in addition to integrating blockchain technology natively into their systems. Visa CEO Alfred Kelly has said that cryptocurrencies may rise in popularity and that Visa wants to be positioned to profit from such development.
“What if, in five years, it’s just a fad? Or will it be tremendously popular?” I am not intelligent enough to know, but I am intelligent enough to ensure that our firm is in the thick of it today,” the CEO said.