HSBC, one of the largest banking and financial services organizations in the world, is planning to shift $20 billion worth of assets to a new blockchain-based custody platform by March.
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, Al Jazeera reported.
Proponents say the blockchain will upend the financial sector by cutting out costly processes or the need for middlemen – though there have been few solid examples yet of such revolutionary use.
Digitizing paper-based records
It is expected to be a vast improvement over the London-based bank’s previous system because it will digitize paper-based records of private placements, Forbes reported.
Private placements are typically held on paper and a lack of standardization makes accessing them difficult and inefficient.
Using blockchain will reduce the time it takes investors to make checks or queries on holdings. The new platform, known as Digital Vault, will give investors real-time access to records of securities bought on private markets.
Currently, the bank holds up to $50 billion worth of assets, so it is taking a big leap of faith by putting 40% of it onto the blockchain platform.
Demand for private placements of both debt and equity has grown significantly in recent years, and investors are seeking higher returns amid low interest rates worldwide.
HSBC expects the global value of private placements to hit $7.7 trillion by 2022, a jump of 60% from five years earlier. Over the same period, it thinks allocations by asset manager clients will grow to 20% from 9%.
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. But its success will not be immediately visible, according to Windsor Holden, an independent consultant who tracks blockchain and cryptocurrencies.
“I wouldn’t expect to see huge savings, or huge efficiencies announced in the first year to 18 months,” he told Forbes.
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