Editor’s note: Big Blue is disrupting the global payments processing trust network, boosting commerce and pressuring trust institutions with a new blockchain offering, says Technology Business Research Analyst Geoff Woollacott.

HAMPTON, N.H. – Technology innovation — from promise to proof-of-concept testing to live implementations benefitting large segments of the world’s population — continues accelerating at break-neck speed.

The IBM (NYSE: IBM) announcement on Monday of a new blockchain banking solution in partnership with Stellar.org and KlickEx Group brings immediate value to the South Pacific — specifically as it optimizes the commercial interactions of Fiji, Samoa and Tonga with anchor trading nations New Zealand, Australia and the United Kingdom — while also serving as a proof of concept for rolling out a global payments processing network at scale.

This announcement enables small-scale iterations to harden technological underpinnings while the more challenging element of building consensus with public officials and the trust institutions they regulate proceeds at glacier-like speed in comparison.

  • VIDEO: Watch an overview about blockchain at https://www.youtube.com/watch?v=lD9KAnkZUjU

The payments processing network sponsor, the Advanced Pacific Financial Infrastructure for Inclusion (APFII), was initially funded by the United Nations and SWIFT, a global member-owned cooperative and provider of secure financial messaging services, specifically to bring world-class financial services to underserved nations. The World Bank, in a paper titled “World Bank UFA2020 Overview: Universal Financial Access by 2020,” states that it believes payment modernization initiatives can extend financial services to 1 billion people by 2020.

The concept again illustrates how innovation can begin small and scale up compared to the historical technological approach requiring large-scale change that could be driven down market on the Moore’s Law Economic price curve over time. In short, while this initiative benefits this underserved region in real time, it also more broadly threatens the status quo of the established government and trust institutions.

  • OTHER EFFORTS: Here’s a look at other blockchain banking efforts.

Bypassing the existing trust institutions at scale, a strong aspiration of cryptocurrency advocates, can likewise unleash new forms of moral hazard into economic commerce. The bridge between old and new trust practices that obviates the need for cryptocurrency rests upon the central banks of sovereign nations establishing their own digital currency assets that easily translate to the old world without denigrating the performance and convenience of this new world structure sitting atop the blockchain distributed ledger technology layer.

IBM will continue innovating around expanding the capabilities to support central bank-issued digital currencies, securities, bonds, and structured financial assets for the benefit of businesses and consumers. Technology will not be the impediment; overcoming the resistance to change by the old world trust institutions and labor-intensive networks will be. Risk mitigation requires the old world domain expertise, but the markets demand the speed of the new world infrastructure.

Key participants

The process benefits and technological underpinnings in place flow from APFII and KlickEx where Robert Bell is chairman of the former and founder of the latter. KlickEx, likewise, has been providing real-time, multi-currency payments for nearly a decade in the region. Extending into the concept of accepting central bank digital currencies required working with banking institutions as well.

IBM amassed an initial group of banking leaders for the development and deployment process, including Banco Bilbao Vizcaya Argentaria, Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Permata, Bank Rakyat Indonesia, Kasikornbank Thailand, Mizuho Financial Group, National Australia Bank, Rizal Commercial Banking Corp. (RCBC) Philippines, Sumitomo Mitsui Financial Group, TD Bank and Wizdraw (HK) of WorldCom Finance, among others.

Disruptive implications

The implications of the economic disruption extend as far as the economically trained eye can see. Blockchain, or distributed ledger technology, is being touted as the single biggest innovation for economic commerce since the development of the general ledger accounting system in 1494. Hundreds of years of innovations, iterations, reactions to unforeseen moral hazards as business commerce shifted from agrarian, to manufacturing, to knowledge, are now poised for extinction in less than a decade’s time.

Undoubtedly, there will be unforeseen winners and losers and the need for iterative policy legislation for risk mitigation. In short, changes such as the shift from the 1995 EU act to GDPR activation in 2018 with a two-year grace period will have to take place potentially in months rather than decades, which challenges the conventional, political deliberation process.

Financial institutions, regulators and the numerous intermediaries in settlement chains will all have to “uberize” their businesses should they wish to remain relevant in the new world economy underpinned by blockchain technology. Political leaders will likewise have to maintain comparable technological agility to protect their citizenry as we move to the new world economy.

(C) TBR