Indian Infosys Sets Up Blockchain Network with Local Banks
The project aims to increase the security and efficiency of the banking sector.
Finacle, a branch of India-based IT services and consulting firm Infosys, has set up a blockchain-backed trade finance consortium with seven local banks to pilot a solution aimed to increase the security and efficiency of the banking sector, according to a statement released on Wednesday.
Although the trade finance business in India is growing steadily, processes are not agile and transparent enough and are prone to fraudulent practices, according to EdgeVerve, a subsidiary of Infosys which owns Infosys Finacle.
Therefore, the consultancy firm created the India Trade Connect network. Within the ecosystem, the banks will test a blockchain-backed software developed particularly to account for the trade finance processes in banking.
The current participants in the consortium are: Axis Bank, ICICI Bank, IndusInd Bank, Kotak Mahindra Bank, RBL Bank, South Indian Bank and Yes Bank. Infosys is pursuing to include more Indian and foreign banks in the network, Reuters reported citing unnamed company executives.
The blockchain software
First revealed in November last year, the Finacle Trade Connect solution intends to digitize processes like validation of ownership, document certification and payments. Infosys explained that banks can use the software for the following functions:
- Bill collection;
- Letters of credit;
- Open account for trade;
- Customer to customer (C2C) transactions for trade;
- Business to customer (B2C) transactions for trade;
- Purchase order (PO) financing;
- Invoice financing.
Sanat Rao, chief business officer at Infosys Finacle, claimed that “digitization of [t]rade [f]inance processes using distributed ledger technology offers immense potential to eliminate the friction, cut costs and increase revenue through new business products that are now viable using the modern technologies.”
Frauds in the banking sector
Infosys Finacle is introducing the new blockchain network in the context of a shaken financial sector in India after nearly INR 114 billion (around USD 1.68 billion) were allegedly stolen from state-run Punjab National Bank (PNB) earlier this year. A month after, the largest Indian lender, State Bank of India (SBI), was defrauded of roughly INR 8.6 billion (USD 127 million)
Statistics showed that fraudulent practices had been common even before the massive scams. It appears that Indian banks had fallen victims of fraud at least every hour on average in the fiscal 2017, according to data by Institution Investor Advisory Services (IiAS). In total, the reported scams amounted to INR 181.7 billion (USD 2.68 billion), the key factor for this development being the weak internal controls at the banks, IiAS wrote in its report.
The blockchain solution developed by Infosys Finacle is not directly defined as a measure capable of protecting financial institutions from frauds. However, Rajashekara Maiya, director at Finacle, told Reuters he was confident that the solution can help prevent scams like the PNB one, because it makes transactions transparent for all participants.