The Bank of Tokyo-Mitsubishi UFJ announced that together with six of its international banking peers it would launch a new cross-border money transfer service that runs on blockchain technology.
Bank of Tokyo-Mitsubishi UFJ has joined the Ripple’s Global Payments Steering Group (GPSG), where it will collaborate with several banks to launch a new wire transfer service that uses Ripple’s distributed ledger technology by the end of 2017. The partner banks include Standard Chartered Bank, Banco Santander, Canadian Imperial Bank of Commerce, Bank of America Merrill Lynch, Royal Bank of Scotland, and Westpac.
The Global Payments Steering Group (GPSG) is Ripple’s interbank group for blockchain-based global payments. The GPSG overseas and maintains Ripple’s payment transaction rules, formalizes Ripple’s payment system’s usage standards and supports the implementation of Ripple’s blockchain for international payments.
“We welcome MUFG, one of the largest and most advanced banks in the world, to the growing number of Ripple customers moving actual money across borders, instantly. While many others continue to play in the sandbox, we’re thrilled MUFG has joined us in our mission to revolutionize payments globally,” said Ripple CEO Brad Garlinghouse.
The new international money transfer service will not only help financial institutions to reduce costs associated with cross-border money transfers, but it will also decrease the chance of fraud and errors as all transactions are viewable and auditable by all parties involved in a transaction. The disturbed ledger technology encrypts all transactions making it extremely difficult to falsify a payment and increases transaction speed to allow for near instant transactions as opposed to the two to five day standard in international bank payments today.
The Bank of Tokyo-Mitsubishi UFJ will be the first large Japanese bank to conduct their cross-border money transfer on the blockchain, but many of its local and international peers are expected to follow suit. According to Ripple, 90 banks are currently interested in participating in the new wire transfer service.
Hirofumi Aihara, General Manager of Bank of Tokyo-Mitsubishi UFJ’s Digital Innovation Division, said: “We are pleased to join Ripple’s Global Payments Steering Group. MUFG is working extensively in FinTech to provide better services to our customers and society. Collaborating with other members of GPSG, MUFG will contribute to the creation of standards for Ripple’s network.”
Bank of Tokyo-Mitsubishi UFJ trialed the payment platform last year and will now collaborate with other international financial institutions to develop the service further. The bank will open up the new platform to individuals in 2018 and intends to expand the service to its corporate clients after that.
For the bank’s customers, the process of transferring money will not change much. To make a cross-border payment individuals will still be able to instruct the bank online or when in a bank branch. Only the underlying technology used to process the money transfer will have changed. Instead of payments passing through the SWIFT network and several banks, payments will reach the destination bank without passing through any intermediaries first. That allows for near instant transaction settlements and easier transfer of funds confirmations.
The cost savings the bank will now make by moving away from the legacy wire transfer process can be passed onto the bank’s customers, reducing the fees the bank needs to charge to process transactions, which will be a big benefit to the bank’s clientele.
By implementing Ripple’s distributed ledger technology, banks will also be able to reduce costs and save on cybersecurity and compliance measures due to the immutable and fully auditable nature of the blockchain.
Aside from international money transfers, Ripple’s Global Payments Steering Group (GPSG) is also planning to integrate sales agreements with payments at financial institutions.
Ripple is Spearheading Blockchain-based Global Payments for Banks
The San Francisco-based startup Ripple has been the key driving force for blockchain adoption for international payments in banking. Ripple has developed a blockchain-based global financial settlement solution that allows banks to transact directly with one another in real-time over the internet. The international payments solution uses internet communications protocols to enable pre- and post-settlement interbank communications and to allow for rapid settlement and arrival of funds. Furthermore, using Ripple’s technology banks can conduct international money transfers 24 hours a day, 365 days a year as no intermediary needs to be open for business to complete a money transfer.
Ripple is currently working with around 90 global banks who are trialing the company’s system. Given the strong interest from banks to use blockchain technology to reduce the costs and inefficiencies of the current global payment methods, it will not be long until the majority of international bank transfers are processed on the blockchain.
Japan Recognizes Cryptocurrency as a Legal Payment Method
The announcement by Bank of Tokyo-Mitsubishi UFJ to join Ripple’s Global Payments Steering Group (GPSG) and to use blockchain technology for international money transfers comes around the same time as Japan officially recognized bitcoin as a legal payment method.
As of April 1, bitcoin can be used as a legal payment method throughout Japan to send and receive payments as well as make international money transfers and hold the digital coin as an investment. This is a huge step forward for the bitcoin economy in Japan and paves the way for a boost in cryptocurrency innovation in the country’s financial technology sector.
The circulation of digital currencies in Japan currently amounted to 185 billion yen ($1.67 billion) in the fiscal year 2015 and is projected to reach 1 trillion yen (approximately $8.99 billion) by the year 2020, according to a study conducted by the Fuji Chimera Research Institute.
Given its bitcoin-friendly regulatory environment, we can expect more innovation to come out of Asia’s second largest economy as more bitcoin startups will be attracted to set up their headquarters there. Unlike regulators in other countries, the Japanese regulator, the Financial Services Agency, has the foresight to acknowledge that there are no blockchains without cryptocurrencies. Hence, by legalizing digital currencies as a payment method, Japan is setting itself up to stay ahead of its peers in blockchain and financial technology innovation.