Venture capitalists are investing money in blockchain upstarts, potential game-changers in the financial industry.

“Blockchain is becoming very hot as banks and financial institutions examine best practices and look closely at what international companies are doing in the space,” states Raymond Cheong, partner at KPMG China. “VC investors are putting a lot of money into small blockchain technology companies in Asia; some very new companies are already into their second or third round of funding.”

In September, Juzhen Financials, a startup led by China UnionPay veteran Lilin Sun, raised US$23 million to develop clearing and settlement solutions based on distributed ledger technology, the technology behind blockchain.

The potential for disruption is strong in the financial industry because of innovations like blockchain. The technology could traverse various markets and could become useful in Asia where markets are fragmented and policies vary.

In Singapore, blockchain’s potential is being explored aggressively. Speaking at the city-state’s first ever fintech festival Ravi Menon managing director at the MAS (Monetary Authority of Singapore) says the blockchain technology could be used for cross-border interbank payments.

“MAS, the Singapore Exchange, and eight banks have embarked on a proof-of-concept project to use blockchain technology for interbank payments, including cross-border transactions in foreign currency,” says Menon.

Under the pilot system, banks will deposit cash as collateral with the MAS in exchange for MAS-issued digital currency. The banks can later redeem the digital currency for cash. “This is an improvement over current large-value payment systems that are centrally operated. It strengthens resilience and lowers cost. The banks also have the option of using the existing common payments gateway provided by BCS Information Systems to transact on the blockchain,” he explains.

Singapore's OCBC recently announced that it had begun piloting blockchain technology for cross-border fund transfers between its operations in Singapore and Malaysia.

"The distributed nature of blockchain's digital ledger removes the need for centralized institutions (intermediaries) and manual processing, which translates to lower costs," explains Praveen Raina, OCBC's senior vice-president of group operations and technology.