Can blockchain speed up the drag of loan settlements? Synaps, R3, and more than a dozen banks say so.
Synaps LLC, a joint venture from global financial services provider Ipreo and smart contracts solutions firm Symbiont, has just closed a successful proof-of-concept of its blockchain platform for syndicated loans.
Nineteen banks participated in the POC, including Credit Suisse—which also helped to organize the demonstration—as well as U.S. Bank, Wells Fargo, Barclays, Société Générale, BBVA, and the Royal Bank of Scotland.
Several financial service providers and buy-side firms also took part in the test, including Eaton Vance Management and Oak Hill Advisors. The process was managed by the R3 blockchain consortium, which currently counts 80 of the world’s top banks as members.
“We got nineteen different institutions, all with a prominent role in the loan market, from different constituents, so we had lots of subject matter experts who participated to tell us how we could service loans on a distributed ledger,” Joe Salerno, CEO of Synaps LLC, told Bank Innovation. “[The pilot] handled particular life events in the cycle of a typical loan, from origination through trading and even through aspects of voting.”
The pilot took place at the R3 Consortium’s Lab and Research Center in NYC. It used the business process solution developed by Ipreo, in combination with Symbiont’s smart contract technology, to more efficiently and quickly complete loan trade settlements.
Caitlin Long, president and chairman of the board for Symbiont, told Bank Innovation:
Smart contracts are well suited to loan settlement because they can automate many functions that today are manual and duplicated by all parties. For example, simply confirming which parties own a loan, and how much they own, can be handled much more efficiently via a smart contract.
We’re looking forward to discussions with our partners in this project about taking it into production, which many have expressed plans to do. One bank is targeting loan issuance to happen on our platform by 1Q18, and we’re optimistic that we can hit that target.
The pilot was operated through eight different nodes on the blockchain, with Symbiont’s technology allowing each node to support several different identities in the loan process.
Smart contracts, a type of self-executing code that first originated on the Ethereum blockchain, could be ideal for loan settlement as the code itself could close the settlement if the right conditions are programmed in.
However, Salerno noted that while Symbiont’s technology was greatly helpful for the pilot, blockchain technology will not be able to fix all the problems in the settlement space.
“I don’t want anyone to think that this is a magic solution to settlement problems–the technology is only one aspect,” said Salerno. Exploring the benefits of both smart contracts and business process technologies can bring to this space is the main reason Ipreo has partnered with Symbiont, he noted. “It’s the combination of these technologies that are going to solve problems, not one on its own.”1 - Reader Likes This Post