HSBC, one of the largest banking and financial services organizations in the world, is aiming to shift $20 billion worth of assets to a new blockchain-based custody platform by March.
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. This will be one of the biggest deployments of the widely-hyped technology by a global bank.
This will be a major upgrade on the previous system as the HSBC platform will digitize paper-based records of private placements.
Banks and other financial firms have invested billions of dollars into finding uses for blockchain, a digital ledger that can be instantly and transparently updated. Few, however, have come up with practical or widely-used applications.
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standardization which not only makes accessing them difficult and inefficient but also points towards an archaic and outdated system.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, HSBC looks after up to $50 billion worth of the assets, so it is taking a big leap of faith by putting 40% of this onto the blockchain platform.
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.
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.
The HSBC platform will digitize paper-based records of private placements, using blockchain to reduce the time it takes investors to make checks or queries on holdings. 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.
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.
However, HSBC could not quantify the amount that could be saved for the bank or its clients by the platform.