Banco do Brasil builds blockchains

Loans Structured Finance Special Reports Interviews Brazil

Blockchain technology, which allows banks to share clients’ financial information, is coming to Brazil. Banco do Brasil, the largest commercial bank in the country, is conducting a series of tests, both by itself and with other financial institutions through the local banking association Febraban, and it plans to start rolling out products with the new technology in the second half of the year or the first half of 2019.

With blockchain comes the promise to transform Brazil’s banking market, but its influence does not stop there, says Gustavo Fosse, IT director at Banco do Brasil. The question is which sectors will adapt most quickly to the new technology.

“There is space for everything. It is a revolutionary technology,” Fosse says.

In the banking sector, blockchain not only has to the potential to make life easier for retail customers, it can also improve access to financing for corporate clients, including large borrowers looking to get syndicated loans, Fosse says.

LatinFinance spoke with Fosse about the development of blockchain technology and its possible applications in Brazil’s banking sector.

LatinFinance: What impact will blockchain technology have on Brazil’s banking industry?

Gustavo Fosse: Blockchain technology is still… I wouldn’t say it’s just beginning, but it’s still evolving, still maturing. Everything that we see with blockchain technology in the financial system comes from tests that the banks have done internally or through Febraban, which has a group that is studying blockchain technology and how to apply it to the banking business.

I think the biggest impact will be improving our clients’ use of financial services because blockchain technology will permeate various sectors, not just the financial sector. If you take a good look, you’ll see people using bitcoin based on blockchain technology. Maybe it’s the one business that most uses blockchain technology.

The technology is also going to make it easier to register transactions and assets in trade repositories. It is going to change how clearing houses and custodial banks work, so it will also change how banks work. There are some people who say it will be the end of the clearing houses, but I don’t think so.

LF: How is Banco do Brasil beginning to use blockchain technology?

GF: Banco do Brasil has been testing various types of blockchain technology. There seem to be close to 90 different types in the world today, with three or four emerging as the major ones. The one technology that everyone will use still doesn’t exist. There are technologies that are more tailored for the financial sector and others for clearing houses.

Here at Banco do Brasil, for close to the past year or year and a half, we have analysts who are studying the technology and running tests. We are participating in a group that we formed with Febraban and we’ve already run two tests with two different types of blockchain technology. We are also talking to public entities because we are a mixed capital company, where the main shareholder is the government.

At first, blockchain technology won’t be for internal use, but for interoperability between financial institutions, or between banks and their clients. We have a laboratory, where we run tests on performance and scalability, but we do the tests with other partners in Febraban and all the member banks.

LF: After doing all these tests, when do you plan to implement the new technology in the market?

GF: That’s for 2018. Our strategy is to start using the technology for less critical small-scale interoperability procedures to see how it works before we use it for financial transactions.

We are a bank. We are conservative in many ways, although the major banks in Brazil have an innovative streak. We are only going to implement a new technology when we are sure of it because we’re talking about our client’s money.

We are very careful about launching new technologies, but the idea is to do something with interoperability with other banks in the first half of 2018.

We are also talking with the central bank to do some tests with them. The central bank is going use blockchain a lot. It will bring whole other dynamic to interoperability with other banks.

LF: To roll out blockchain technology, are other commercial banks in Brazil becoming more like partners and less like competitors?

GF: We compete in the market, in the banking market here in Brazil, but we are partners in regard to the standardization of processes and technologies. When you look at check deposits in Brazil, for example, we got together and made it digital. The banks win, the clients win, and in this case the environment wins.

We are now working together to define standards, to identify the best technology and where we are going to apply it. Blockchain technology alone, within one financial institution, adds very little. It works better between different organizations.

LF: Will the partnerships extend to fintechs too?

GF: They can. We see fintechs as companies that can improve services for our clients. Here in Brazil, we don’t see fintechs as competitors. We see them as partners, as opportunities. I know there are some countries where the banks see fintechs as competitors. But here we are getting closer and closer to fintechs.

We are going to use open banking technology with the fintechs. Banco do Brasil is maybe the most advanced Brazilian bank in terms of open banking. This will certainly lead us to use blockchain technology, and we have already started talking to fintechs about this.

Open banking allows developers to access banks through [application programming interfaces]. GuiaBolso is a company that collects all the data from a client’s various bank accounts and presents a single vision, let’s say. Open banking is like if I invite GuiaBolso to come here and look at my client’s bank statement. I sign an agreement with GuiaBolso, the client authorizes access to his data, and GuiaBolso gets it from a transaction that I make available.

This is a grand evolution in standardization in the banking sector, and using blockchain technology is going to help it in a lot of ways.

I’ll give you an example. When I buy a car from someone here in Brazil, the seller has to sign a document, which we call a DUT, and have it authorized by a notary public. I take the document to the DMV to register the car. Have you thought about doing it electronically without having to go anywhere? The seller sends me the registration electronically, and the car is registered in my name. But if the car has been put up as collateral for a loan, and someone tries to sell it, the bank will know, and I won’t be able to buy it. Or if I do buy it, I’ll be aware that it is being used as collateral for a loan.

LF: What will be the benefit for corporate clients? Will blockchain technology be an effective for syndicated loans?

GF: Imagine that a bank will be able to access a client’s total credit history with other banks, with the client’s authorization, of course. When the client goes to get a loan from another bank, the bank will know if he paid, if he didn’t pay, if he paid on time, and it will be able to give a better credit score.

For a syndicated loan, we can already do that with the technology that we have today because it’s a smaller volume. It’s something that can be quickly because the technology already supports it. LF

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