BY Rahul SachitanandET
Bureau | May 07, 2017, 06.21 AM IST
For a private dairy operator in Vijayawada in
Andhra Pradesh, reconciling payments to and from various vendors usually takes
up to a fortnight. To try to bring this down to no more than a couple of hours,
the company is finalising a plan to use a new technology idea to speed things
up. Rather than overhauling its backbone and hastening the process by buying
new computers and servers, the dairy is instead turning to blockchain, a
decade-old technology (most famously or infamously associated with the bitcoin
crypto-currency), to solve its problems.
By leveraging the benefits of blockchain, a
distributed digital ledger, this dairy now wants payments to be reconciled in a
matter of hours. It can perhaps learn from Bajaj Electricals, the 79-year old
provider of electrical gear. Last year it unveiled a solution for vendor
payments, which shrank processing time from weeks to a matter of hours. Other
companies across industries such as manufacturing, logistics and
automobiles are in various stages of testing this relatively old
record-keeping platform for new requirement.
For example, a handful of state government
departments are tinkering with this technology to improve record storage, while
supply chain companies are trying to use this platform to manage its disparate
ecosystem. In December 2016, the Mahindra Group unveiled the use of blockchain
for its supply chain finance unit.
As the interest has grown across the board,
everyone is tinkering with their own blockchain projects. Over the last few
months, India’s largest lender, the State Bank of India (SBI) has been running
an initiative called Bank chain, in partnership with IBM, Microsoft, Skylark,
KPMG and 10 commercial banks to use blockchain to try to minimise fraud.
Private sector rivals such as ICICI Bank, Yes Bank and Axis Bank too have been
experimenting with this technology. “Blockchain opens up the opportunity to
redefine money transfer globally,” says B Madhivanan, chief technology and
digital officer, ICICI Bank. The bank, over the past few months, has become
part of three consortiums to build its in-house capabilities, as it seeks to
understand a technology that has the potential to redefine the financial
services market.
Timing may be everything. While there has been plenty of hype
around blockchain over the past couple of years, recent developments suggest
that interest, especially from the financial services industry, may have
cooled. R3, a consortium of 72 of the world’s leading financial institution
focused on building blockchain solutions, has seen its ambitious funding plans
pared — from raising $200 million by selling 90% of the company to selling 60%
for $150 million. Goldman Sachs, Santander and Morgan Stanley opted out of this
fund raise, as the consortium — and many businesses around blockchain —
struggled with moulding the ideals of Silicon Valley to the realities of Wall
Street. Then funding, the lifeblood of any startup ecosystem, has also dwindled
recently. According to data from CB Insights, a tracker of such data, the
number of deals in bitcoin and blockchain in the US fell from 161 in 2015 to
132 in 2016.
While this market has relied on traditional, centralised, computing
infrastructure, recent developments have begun to expose its limitations. In
the middle of 2016, Union Bank of India was robbed of $171 million in an online
currency swindle. Others such as ICICI Bank, SBI and Bank of India have all
been hit by hackers recently. “Corporations are fighting a costly, losing
battles using existing (centralised) databases to secure their data,” says
Toshendra Sharma, founder, Records Keeper, a startup working to build solutions
using this technology. “The decentralised, secure nature of blockchain offers a
safer alternative.”
The Indian market then is yet to feel the
aftershocks of the funding slowdown in the US.
Bit by Bit
Records Keeper is hardly the only startup trying
to build a business on blockchain — several others tout their solutions too.
For example, in Bengaluru, twin brothers Ankit Ratan and Arpit Ratan and friend
Ankur Pandey are building Signzy, a venture providing e-KYC, data intelligence
and digital contracts using blockchain, while Kunal Nandwani, an entrepreneur
in Chandigarh, has launched Hashcove, a distributed and decentralised
information database. Elsewhere, Rohas Nagpal, a veteran of cyber crime and
security, has spent the last couple of years building Primechain, which offers
plug-and-play software kits to enterprises looking to build blockchain-based
solutions.
Other entrepreneurs are thinking even further
afield — the founder of RealX, Manish Kumar, says he wants to use this
technology to develop a fractional real estate ownership startup. “If bitcoin
was the killer app, then the tipping point will be widespread regulatory
approval for the use of blockchain-based solutions across industries,” says
Karthik Balasubramanian, founder of KrypC, a fintech firm that specialises in
blockchain development.
“Startups focused on blockchain are at least two
years away from going mainstream,” says Nagpal of Primechain. In the interim,
both startups and oldworld banks are spending their time sharpening their
capabilities. For example, ICICI Bank has been running proof of concepts for at
least a year now, focused on areas such as trade finance, which involve
customers and partners scattered across the world, to ascertain the future of
this technology.
India’s second largest lender is using these
projects to discover the willingness of customers to dabble in this emerging
technology, even as it balances the need to keep its legacy business chugging
along. ICICI Bank is running three proof-of-concept or POC projects internally,
focused on trade, international finance and the core technology, as it seeks to
make inroads into this space. “The biggest advantage for the trading community
is cutting through layers of intermediaries… the potential is to close the loop
from 7 -10 days currently to 20 minutes flat,” says Madhivanan, the bank’s tech
chief. Despite this being a decentralised offering, he believes that the
regulator, the Reserve Bank of India, will play a central role in the evolution
of blockchain.
“While we have made some strong progress, we are
far from going mainstream with this technology, since there are several issues
(dispute resolution, for instance) that have yet to be sorted out.”
The Right Fit?
Startup founders are split on the looming presence of large
banks and the likes of the RBI in what is meant to be decentralised platform
like blockchain, which critics contend is about being distributed without such
oversight in first place.
“Most use cases involving banks and financial
institutions are over hyped and won’t last beyond early proof-of concept
pilots,” says Nandwani, founder of Hashcove. He wants to leverage blockchain to
build a decentralised information database, along the lines of Wikipedia.
Hashcove’s product, to be launched in the next
quarter, according to Nandwani, will be a collaborative information platform,
with the focus on building a secure data repository for initiatives like KYC.
“Anything that banks will do around blockchain won’t work… large banks have
known and trusted each other and can improve their capabilities using existing
technology,” he adds. “We believe we can make better use of this technology by
looking elsewhere to leverage its strongest features.” Hashcove has three
products based on blockchain—uClear, a solution for real time settlement, KY
Chain, a solution to share documents for KYC, and HashDegree to digitally issue
a range of educational certifications.
However, others such as Ankit Ratan, co-founder of Signzy, a
developer of e-KYC, data intelligence and digital contracts using blockchain in
Bengaluru, take a more pragmatic approach to regulators and central banks.
“Our stand that the core of the blockchain
market would be occupied by regulators and large financial institutions has
been validated by initiatives from organisations, including the RBI,” he says.
Companies like Signzy will work around these large entities
to build utilities based on blockchain. Signzy is using other emerging
technologies — ranging from AI to Aadhaar — to build KYC, digital contracts and
algorithmic risk intelligence to its customers. “Using our solutions, customers
can be compatible from the day blockchain proliferates, rather than spend a
year or more rebuilding their backbone to keep pace with these changes,” he
adds. Signzy has been working in the field for at least three years, starting with digitising legal
contracts and adding a layer of AI and blockchain to authenticate these deals.
“We want to take old world paper deals and use cutting-edge technology,
especially blockchain, to greatly hasten the mostly manual verification
process,” says Ankur.
Financial services may play a leading role, when
this switch happens. “Financial services is leading the adoption of blockchain,
with other sectors such as logistics showing a strong interest,” says Rajendra
Mhalsekar, head, corporate banking technology, Yes Bank.
No Longer Anonymous
While the original aim of blockchain was
complete anonymity, enterprises are today working on a tweaked model, called a
permission ledger, which gives a limited number of people oversight into the
chain of transactions. According to Mhalsekar, blockchain could eventually be
all-encompassing for the financial services industry, even if stronger adoption
is some time away. “As a bank, we can safely say blockchain is the future,” he
adds. Yes Bank itself played a key role in Bajaj Electricals’ adoption of a
blockchain — curiously, the idea germinated with TI Cycles in Chennai, but was
scuppered due to an uncertain political atmosphere in the state — and Mhalsekar
says more group companies of the auto giant are keen to roll out some pilot
projects too.
However, the low-hanging fruit for Yes Bank are
the 200-odd companies signed with its corporate finance unit, all of which have
scattered businesses and a complex network of vendors and partners to manage.
“With the RBI also getting into various government units and Income-Tax
Department showing interest in this technology, widespread adoption isn’t far
away.”
It is this adoption that entrepreneurs like
Balasubramanian of KrypC are keen on. After spending much of the past two
decades in the payments market, it was natural to gravitate towards blockchain.
While he started this journey looking to build around bitcoin, he quickly
realised slow-tochange regulation would hamper any initiatives on that front.
Instead, KrypC, rather grandly, wants to focus
on a new way of doing business by combining blockchain and AI to build Krama, a
platform to construct applications based on this distributed ledger. “We are
trying to build a platform where not just programmers, but even business users
can quickly build these apps,” he adds. Then, the company is also building
payments and retail solutions built on blockchain, as it hunts for customers
even outside India, with a greater focus on the US market. “We are building products for the global market
from here, and the domestic and the US are just the first two steps in this
journey,” says Balasubramanian.
Other startups too hope that they can make
similar headway. In Mumbai, Records Keeper’s CEO Sharma says he gets five to 10
requests a day from people eager to pick up the nuances of this emerging
technology. His venture builds solutions for firms in pharma and healthcare and
government agencies to safeguard confidential data of patients, customers and
citizens. With the hacking of data becoming increasingly common, this new
method of safeguarding may be handy.
“You can build multiple layers of security, but
you can’t stop internal sources from getting your data,” says Sharma. Records
Keeper uses blockchain to provide better security to users. It will remove
questions of trust involving an intermediary and since it isn’t stored on a
central server, is also safer. “There’s massive cost associated with doing this
traditionally for industries such as pharma (for storing medical records), and
they are keen to look at cheaper ways of doing business,” he adds. To bolster
its offerings, ReCoin Blockchain, Record Keeper’s blockchain solution, will
soon be supported by Public Miners, to make it more trusted. “Everyone thinks
blockchain is bitcoin, just like Google is a synonym for the internet,” he
adds. “We think there’s a chance to change this perception.”
Other entrepreneurs want to cash in too. Manish Kumar founded
Grex, an online private market platform, three years ago. Now, he’s looking to
take some of the learnings from that venture into his next startup RealX, which
focuses on fractional real estate ownership.
Rather than owning an entire piece of land,
RealX uses blockchain to provides investors a smaller chunk of land to own and
trade, just like a stock market, not to live in. Like other startups, it leans
on its distributed and secure features to keep transactions watertight. If
financial services were better regulated while running Grex, blockchain is much
less so, with companies needing to rely on limited regulation and, in the case
of RealX, setting up an online real estate registry to get business started.
“We started with a pilot project in Maharashtra and we are already considering
an expansion to other states,” says Kumar.
Bit by bit and block by block, a range of
companies, from old-world financial services companies to diversified
industrial conglomerates and new-age startups, are recasting the way businesses
manage their money and their operations
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