About two years ago, the board at Australia and New Zealand Banking Group (ANZ) wanted to figure out if bitcoin was a threat or an opportunity for the bank. They turned to Nigel Dobson, GM of Wholesale Digital Transformation ANZ, to figure it out.
"Ever since, I've been quite consumed by the concept of cryptocurrencies, particularly blockchain and its attributes," Dobson told the SINET61 conference in Sydney on Wednesday. "We are intrigued by the cryptocurrency end of the spectrum, but it's something we haven't really embarked upon."
Instead, Dobson said the bank -- a heavily regulated organisation -- quickly ruled out the immediate use or participation in cryptocurrencies, and became increasingly intrigued in versions of blockchain and distributed ledgers. As a result, ANZ embarked on quite a number of proofs of concept that Dobson called successful, all centred around managing information.
"There's a lot of glamour attributed to the transaction initiation and transaction capture, price discovery end of the value chain, but the less glamorous end is clearing settlement and reconciliation, but it is the one that's most in need of transformation," he explained.
"We saw the information sharing and security attributes of distributed ledgers being a really good fit for that end of the value chain."
Dobson said ANZ has conducted a number of proof of concepts with other banks and organisations, particularly around reconciliation and payments. It also recently completed a blockchain-based trial with tech giant IBM, alongside competitor Westpac, to digitise the bank guarantee process used for commercial property leasing.
"It's been a really interesting journey," Dobson said on Wednesday.
"What we've done is recognised the inherent security attributes of distributed ledgers. We can indeed take advantage of those security attributes and feel -- at this stage -- quite confident that we have a secure network."
According to Dobson, the bank needs to learn more about blockchain-based technology via its traditional business before it can head further down the blockchain rabbit hole.
"We need to test and learn around our traditional value chains which we believe is actually the quite significant opportunity to reduce cost and increase efficiency," he said.
Speaking on the same panel as Dobdon, John Pellew, founder and CEO of Australian fintech firm OTHERA, believes ANZ biding its time before exploring the blockchain to its full capacity is not the best approach.
"The risk of not looking at it now is that the market will leave you behind and all of a sudden we don't need banks to do a lot of the functions," Pellow told the SINET61 conference.
"If the banks don't start now then they're going to be 10, 20 years behind because the space is just moving so quickly."
Economic and efficiency benefits aside, Pellow believes there's a whole other world out there of what organisations like ANZ can actually do once it starts digitising and tokenising assets.
In addition to working alongside ANZ, Westpac joined financial messaging service SWIFT's blockchain proof of concept in July, which is expected to validate whether the technology can help banks reconcile their international nostro accounts in real time.
Westpac is the only Australian bank joining the 22 institute-strong consortium that comprises Deutsche Bank, JPMorgan Chase Bank, Lloyds Bank, Standard Bank of South Africa, and others.
Launched in January, the proof of concept is still under development by SWIFT and a group of six founding banks, which includes ANZ, BNP Paribas, BNY Mellon, DBS Bank, RBC Royal Bank, and Wells Fargo.
The Commonwealth Bank of Australia is also exploring digital ledger technology, claiming the first interbank trade transaction in October that combined blockchain technology, smart contracts, and IoT in partnership with Wells Fargo and Brighann Cotton.
NAB Ventures, the venture capital fund of the National Australia Bank, led a $24 million Series B investment round for foreign exchange startup Veem in February. The San Francisco-based startup uses blockchain technology to perform cross-border business-to-business payments that are settled and sent in respective local currencies.