While still in its concept stage, blockchain technology otherwise known as the system powering the Bitcoin has captivated the financial world due to its ability to digitally verify transactions through a self-governing database. The usage of blockchain could prove to be a significant development especially in a world where systems for anti-money laundering and know your customer (KYC) are increasingly becoming essential for banks to function.

According to a survey of Asian-based banks by consultancy firm Ovum, more than a third of banks in the region were reported to be at least piloting a programme with blockchain technology. Late last year for example, Japan’s Mizuho Bank joined the R3 blockchain consortium along with several other financial institutions such as HSBC and BNP Paribas to develop a framework for blockchain technology usage in banking.

In South Korea, Kookmin Bank last month partnered with Bitcoin wallet service and merchant payment solutions provider Coinplug to develop an international remittance service. Through a distributed ledger-based banking and remittance network, the bank aims to offer customers faster foreign exchange services within Asia.

In the trade finance space, DBS and Standard Chartered Bank worked together late last year to develop a blockchain system that digitizes and tracks trade invoices. While the process is at its proof of concept stage, if successful, it will look to reduce the risk of duplicate invoice financing. “For banks, the trade finance-side is very paper-based and manual,” explains Lum Yin Fong, DBS’s global head of client management and implementation. “We were trying to see how we could mitigate risk in terms of trade transactions.”

Asian financial regulators are also focusing on blockchain technology. The Monetary Authority of Singapore (MAS) last summer funded a blockchain-based record keeping system as part of its US$225 million investment plan to develop financial technology. In Hong Kong, financial secretary John Tsang said that “the government will encourage the industry and relevant organizations to explore the application of blockchain technology in the financial services industry, with a view to developing its potential to reduce suspicious transactions and bring down transaction costs.”     

While the support from Asian financial regulators is a good sign for blockchain development, more still needs to be done to make Asian banks feel comfortable about embarking on their own blockchain discovery. Ovum’s data shows that 40% of Asian banks surveyed were unsure about the regulatory environment around blockchain.