A consortium of Japanese banks plans to use distributed ledger technology — better known as blockchain — from a Google-backed fintech start-up to make domestic and international payments. This follows a successful implementation of a pilot program, where the 47-member consortium used technology from blockchain start-up Ripple for a cloud-based payments platform called RC Cloud. The platform allows member banks to do real-time money transfers in Japan as well as make cross-border payments at a significantly lower cost. "The objective of the consortium is to make domestic and cross-border payment efficient by taking advantage of the latest distributed ledger technology available in the world," Emi Yoshikawa, Ripple's director of joint venture partnership, told CNBC. The consortium was launched in October and represents over 30 percent of all banks in Japan, according to Yoshikawa . Members include AEON Bank, Nomura Trust and Banking, Resona Bank and Mizuho. Many small banks that process low volumes of payments have to rely on their larger peers to clear the transactions because of a high fixed annual cost for membership at the clearing houses. As a result, they have little control over the fees they are charged per transaction, making it expensive and unprofitable. "Existing infrastructure favor high-volume processors," Dilip Rao, managing director for Asia Pacific at Ripple, told CNBC. "(They) get the cheapest price." This is where blockchain — which is the basis for Ripple's technology — comes in. It records and stores all of the transactions online securely on a peer-to-peer network, which eliminates the need to have an intermediary bank or a central hub to do the clearing and settlement. "With distributed ledger technology, it doesn't matter because the little guy can speak to another little guy and it's just as cheap if they did 10,000 transactions or two," Rao said. According to analysis done by Ripple, looking at retail remittances and corporate payments, distributed ledger technology has the potential to bring down transaction costs by 60 and 50 percent, respectively. Yoshikawa said she expects 10 to 20 more banks to join the consortium this year, which will bring the total number of members to between 50 and 60 — about 40 percent of all Japanese banks. The commercial phase of RC Cloud is expected to start in the fall of this year. While Japan's adoption of technology is diverse — from smartphones to smart cars — its banking system has traditionally been conservative in adopting new technologies and systems. But in a bid to become a key fintech player in the region, Japanese authorities and banks are taking note of blockchain. The Bank of Japan has talked about exploring distributed ledger technology and its potential uses. Last year, the central bank announced a joint research project on blockchain with the European Central Bank. Mitsubishi UFJ Financial Group, a member of the global blockchain consortium R3 and one of Japan's largest financial institutions, is looking to develop its own digital currency, MUFG Coin, for potential, large-scale commercialization and to serve small-scale retail bank customers. Rao said Japan was very different to the rest of the world when it came to new developments in fintech like blockchain. "They have had a lot of interest in bitcoin, blockchain and is more aware of crypto-currencies." Source: CNBC
