DBS Shares Collaborates with JP Morgan Payments
During its quarterly financial report, Singapore’s DBS Bank detailed its DBS Digital Exchange development and provided information on Partior, a blockchain payments joint venture with JP Morgan and Temasek.
The DBS Digital Exchange, which launched in December 2020, has $80 million in assets under custody, according to CEO Piyush Gupta.
Trading volumes range from $30 to $40 million, and the company currently has 120 customers and a much broader pipeline. The solution is aimed at approved investors and organizations, as previously mentioned.
In the coming quarters, the company expects to launch its first security token product, and its operating hours will be extended from Asian business hours to 24 hours a day, seven days a week.
Gupta then discussed Partior, a blockchain-based payments infrastructure that will tokenize bank account balances in multiple currencies, allowing for instant interbank payments.
Partior Addresses Payment Challenges
The aim is to resolve the difficulties of cross-border payments, which require foreign banks to open Nostro accounts with any other bank to which they wish to send money.
They must use an intermediary correspondent bank if they do not have an account. This complicates the process, reduces accountability, and can result in delays.
Banks use a shared ledger when they use tokenized currency. There are no middlemen, and there is no need to postpone payment clearance. There’s even full accountability.
“This is a shared ledger,” Sopnendu Mohanty of the Monetary Authority of Singapore said in a recent FintechBeat podcast.
We’re consolidating the various Nostro accounts you had in multiple banks and currencies into a single shared ledger. And every bank must participate in the mutual ledger to use it as a forum for atomic settlement.” He stressed that it is a shared infrastructure that is accessible to everyone.
While the results were announced, DBS CEO Gupta said, “Money can be translated into a digitized form that has been cleared, which can be sent across for settlement as quickly as a written letter.”
“And the platform is effective since settlement can be configured to occur if conditions one, two, three, and four are met. It not only eliminates the process’s lag, but it also gives you the ability to programme instructions.”
The holy grail of blockchain solutions is digital cash and instant payments.
How is DBS leading?
The partners want to make it an open platform that focuses on the Singapore and U.S. dollar at first.
However, the euro, sterling, renminbi, and other currencies will be featured.
DBS has three goals in mind as a result of its participation. The first step is to collaborate on the business infrastructure that will support a digital economy.
The second goal is to provide incentives to clients, including non-bank financial firms and corporations.
The instant settlement uses cases like foreign exchange payment versus payment (PvP), securities distribution versus payment (DvP), peer-to-peer escrows, and services that supplement central bank digital currencies possible.
Finally, DBS hopes to benefit from the technology’s licencing royalties.
We had previously inquired about governance and shareholding splits. During the presentation of the results, DBS announced that it would own a 33 per cent stake.
In April, the partners said that pilots would begin in the second half of 2021, but DBS set a more ambitious launch date of the third quarter, pending regulatory approvals.
A Major Concern
We have a practical question about the effect on reconciliations, which we believe blockchain can solve. With rare exceptions, there should be no need for reconciliation with a shared ledger.
However, one of the obstacles in early blockchain trials performed by SWIFT several years ago was reconciliation.
When you combine blockchain and traditional transactions in the same account, the reconciliation situation becomes even worse.
So, our question is whether any bank must set up a separate account for participating customers, similar to a savings account, where money is swept in for tokenization.
Alternatively, all tokenization transactions should simply be labelled as such, letting the reconciliation mechanism know that they are distinct.
Whether or not tokenization makes reconciliation more complex, it is a temporary problem that will be fixed in the future.
And the advantages of tokenized money would almost certainly outweigh the disadvantages.