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Build and govern FI networks at scale with Azure Blockchain

At Sibos 2018 in Sydney, Australia, Microsoft will showcase how blockchain technology helps financial institutions (FIs) adapt to new competitive dynamics for mitigating risk, reducing cost, and improving customer outcomes.

At its core, the Financial Services industry facilitates the trusted exchange of value across multiple, untrusting parties. Brokering that trusted exchange carries enormous responsibility and significant risk. For this reason, FIs rely on costly third parties, manual audits, and time-intensive reconciliations to manage risk and satisfy regulatory requirements.

Today, more FIs are looking to blockchain to streamline cross-organizational collaboration, remove the need for error-prone audits, and create transformative business models using real-time customer insights. By utilizing the blockchain to broker trust, FIs mitigate risk, reduce costs, and improve customer outcomes.

As an industry leader, Microsoft is continually innovating on how blockchain technology can help financial institutions (FIs) to adapt to new competitive dynamics for mitigating risk, reducing cost, and improving customer outcomes. At its core, the Financial Services industry facilitates the trusted exchange of value across multiple, untrusting parties. Brokering that trusted exchange carries enormous responsibility and significant risk. For this reason, FIs rely on costly third parties, manual audits, and time-intensive reconciliations to manage risk and satisfy regulatory requirements.

Today, more FIs are looking to blockchain to streamline cross-organizational collaboration, remove the need for error-prone audits, and create transformative business models using real-time customer insights. By utilizing the blockchain to broker trust, FIs mitigate risk, reduce costs, and improve customer outcomes. Find out more on how the financial services institutions are putting blockchain into action and its impact in financial services.

What is blockchain?

Initially popularized as the foundation for digital currencies like Bitcoin, blockchain’s combination of distributed systems and cryptography enabled the near-immediate transfer of value between counterparties with an immutable record written to a shared ledger. While early ledgers were limited to facilitating “spot” transactions, more enterprise focused technologies like Quorum and Corda soon enabled users to set the terms under which value would be transferred at a future point in time, through smart contracts.

For FIs, this new data structure provides a distributed, immutable record to manage the trade and settlement of the digital assets they finance, transfer, securitize, and insure.

Blockchain for FIs

While the surface area of blockchain is vast, we’ve found that FIs are increasingly interested in digital asset transfer scenarios. Depending on its role, an FI may have several touch points along the custodial chain of a digital asset:

  1. Digital asset creation and issuance: Retail and commercial banks alike are using blockchain to track everything from the provenance and performance of underlying debt for collateralized debt obligations (CDOs), to the flows of physical commodities that make up their securities.
  2. Financing: Commercial banks responsible for extending credit for asset purchases look to streamline cumbersome trade finance processes, exchanging data between corporate customers, KYC and credit data providers on a common data structure.
  3. Trade and post-trade settlement: Exchanges and clearinghouses are translating trade logic into smart contracts to efficiently transfer digital asset across parties. Smart contracts confirm ownership and trade terms as part of an immutable audit log on the blockchain.
  4. Asset insurance and claims processing: Insurers are working with banks and corporate customers to codify the terms of their policies and more accurately collect and attest the data pertinent to the premium setting process. Sharing this information, immutably, on the ledger, allows insurers to adjust premiums in light of new information. This frees up capital for corporate customers, while reducing the burden of claims processing and reconciliations for insurers.
  5. Regulatory compliance: Banks are securing and automating compliance processes that draw from undisputable data sources – reducing both the cost and risk of error when auditing compliance with regulations such as Dodd Frank, Basel III and MiFID II.

Microsoft has been working with FIs across this spectrum around the world:

  • Nigeria: Interswitch is working with banks like United Bank for Africa to bridge the supply chain financing gap between an existing corporate-focused infrastructure and a small entrepreneurial economy emerging in West Africa. Partnering with large banks and corporates in Nigeria, Interswitch has built a bank guarantee service on Azure that extends the reach of the banking system to non-traditional players. Interswitch empowers bank lenders, corporate suppliers, and borrowers of all sizes to manage their supply-chain financing under objective terms and complete transparency.
  • Denmark: Insurwave, a consortium of insurers including XL Catlin and MS Amlin, are working with corporate customers like Maersk to trace the movement of valuable cargo across oceans and provide attestable insight into both its real-time risk and the degree to which shippers are adhering to contractual terms.
  • United Kingdom:  and R3 are working with 11 global banks to automate trade finance products under the Marco Polo initiative. The initial focus in the network is on receivables discounting and payment commitment supported by DLT based software, Corda. For corporates looking to collateralize receivables, the process of submitting and financing invoices requires tremendous manual effort and reconciliation across counterparties. With Marco Polo and Dynamics ERP, corporates can automate and attest receivables in real time and banks can apply their rules and eligibility logic, providing all parties with an accurate view of present and future cash flow. The Marco Polo integration to Dynamics allows for seamless connectivity between banks and their corporates.

Incorporating blockchain into your business

Although blockchain provides transformative capabilities for financial services, FIs still have to figure out how to scale to production and integrate with existing workflows. Building a foundation to manage, govern, and grow a functional blockchain network is a huge undertaking, requiring heavy ongoing resource investments. ​

Now FIs have the ability to quickly start and scale blockchain projects with Microsoft. As an early investor and thought leader for blockchain, Microsoft offers a suite of tools for building with blockchain that simplifies application development and network management. The security and scalability of Azure enables banks to create impactful blockchain solutions and manage and govern networks at scale. Microsoft provides a durable foundation to support all network activities from proof of concept to production, starting with Azure Blockchain Workbench. Find out more about the available industry-specific blockchain utilities from our partners on the Azure Marketplace. Take the leap and jumpstart your blockchain project today on Azure.