Inside the creation of Citi’s blockchain payments platform
- Major bank consortia are doing important work and making progress, but for the most part, they still haven't delivered market ready blockchain platforms or solutions
- Citi is involved with large bank consortia but it's in smaller group work that it's most effective, as evidenced by its blockchain integration with Nasdaq
Speed before scale is the name of the blockchain game for Citi.
On Monday, the bank unveiled an agreement with Nasdaq that allows it to actually put money on blockchain technology by linking its business payments services to Nasdaq’s blockchain platform, which is used for buying and selling shares of private companies, among other things. It’s not a proof of concept or an announcement of an upcoming announcement. It’s ready now for “real world” use, according to Morgan McKenney, Asia Pacific head of core cash management, at Citi’s treasury and trade solutions arm.
The technology integration means there can be a direct exchange of funds between Nasdaq and Citi — when someone purchases a share, for example — without the time consuming in-between messaging normally involved. Today when people try to move money, they do so through messaging platforms that need to be verified and reconciled so funds can be released. This partnership merges the ledger that shows moving shares and the one that shows moving money — and removes the need for a reconciliation process.
It’s significant to witness a blockchain solution in the wild. The more common strategy is to build large networks of technology contributors and co-creators of applications for the technology; those groups hardly have completed work to show. The idea behind the Citi-Nasdaq partnership, using Chain’s technology, was to create a “minimal viable ecosystem,” of just a few trusted partners — to be able to get a product to market faster, and focus on scaling the network later.
“Everyone is used to a minimum viable product, how do you extend that thinking to something thats going to involve multiple players?” said McKenney.
To have impact, blockchain technology needs a network effect — the more people use it, the more value it has. But building a network before executing a product or service can slow a group down, and the bigger the group, the easier it is to get caught up in ideas without much execution. One of the things that “helped translate the theoretical thinking to actual application” was considering the project’s “feasibility,” McKenney said.
“Could we launch this thing within a year? We did not want to be in this space where blockchain was too new,” to use in the foreseeable future, McKenney said. “Citi didn’t build a true killer app… it solved a true customer painpoint.”
It helped that Citi, Nasdaq and Chain have a previous working relationship and “didn’t start from scratch,” McKenney said. Citi and Nasdaq are using the fourth iteration of Chain’s Open Standard protocol. At this time last year, Chain unveiled the first version, which it built with Citi and Nasdaq as well as Capital One, Fidelity, First Data, Fiserv, Mitsubishi UFJ Financial Group, State Street and Visa.
Citi is involved in many collaborative efforts: R3 CEV, the 43-member bank consortium focused on building a distributed ledger for financial agreements; Hyperledger, a cross-industry collaborative effort to create a fabric layer with blockchain technology on which members can build other applications; and the Enterprise Ethereum Alliance, the privacy-oriented group developing solutions with open-source ethereum.
McKenney’s remarks about a minimal viable ecosystem highlight a growing conversation in the blockchain space and in fintech more broadly: that startups and legacy firms often refer to younger technology firms as “partners” instead of “vendors.” It’s difficult to be a vendor of new technology for financial services because no legacy institution wants to be tied to a single provider.
“We really have forged the new innovation model,” McKenney said. “This was created for Nasdaq with Nasdaq. The concept of co-innovation, or co-creation, is relatively new. Banks are still relatively early in that space.”