By Diana Ngo
Set to become a global fintech leader, Singapore has made blockchain technology one of the city-state's top priorities.
In November 2014, Prime Minister Lee Hsien Loong officially launched Singapore's Smart Nation initiative, an ambitious project aimed at rallying the collective efforts of people, businesses and government to work together to "support better living, create more opportunities and support stronger communities" by harnessing technology.
But a Smart Nation needs a Smart Financial Center, said Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), the city-state's central bank and financial regulator. And to achieve this, MAS has been actively supporting fintech development, creating funding schemes and committing itself to propose a conducive regulatory environment for startups.
Last month, MAS, in collaboration with the Association of Banks of Singapore, organized what might well be the largest event so far dedicated to fintech. The inaugural Fintech Festival, a four-day event that ran between November 14 and 18, was attended by some of the world's top thought-leaders, financiers, fintech entrepreneurs and policy makers to discuss the future of financial services.
The event was the opportunity for many to make big announcements. Among these, IBM announced a collaboration with Singaporean fintech startup KYCK! to build a platform for a more efficient client onboarding process for financial institutions. By leveraging blockchain technology, the new system would allow banks to streamline operations by adopting a one-time process with secure data protection and enhanced identity verification.
The Fintech Festival was also the opportunity for MAS to further express its commitment to blockchain technology. On November 16, Menon took the stage to announce a partnership between MAS, the Singapore Exchange, R3 and eight banks.
The collaboration aims to develop a proof-of-concept project to conduct interbank payments using blockchain technology. MAS said that the new system, which would leverage blockchain technology, should make financial transactions and processes more transparent, resilient and cost-effective.
Under the pilot system, banks will deposit cash as collateral with MAS in exchange for MAS-issued digital currency. Later, the banks will be able to redeem the digital currency for cash.
Participating banks will be able to pay each other directly with the digital currency instead of first sending payment instructions through MAS. "This is an improvement over current large-value payment systems that are centrally operated. It strengthens resilience and lowers cost," Menon said. "This project marks the first step in MAS’ exploration of ways to harness the potential of central bank issued digital currency. The next phase of the project will involve transactions in foreign currency, possibly with the support of another central bank."
Participating banks in the proof-of-concept project include Credit Suisse, United Overseas Bank and OCBC Bank.
Beyond cross-border payments, blockchain technology can also be applied to many other areas, including those which involve contracts or transactions that currently rely on trusted third parties for verification.
Through its Financial Sector Technology & Innovation (FSTI) scheme, MAS has committed S$225 million (US$157 million) over a five-year period to provide support for the creation of a vibrant fintech ecosystem.
Among the projects that have been backed by the scheme is a "decentralized record-keeping system based on blockchain technology" aimed at preventing duplicate invoicing in trade finance, Menon unveiled in June 2015.
In August, Singapore’s Infocomm Development Authority (IDA), along with HSBC and Bank of America Merrill Lynch, announced the trial of a new blockchain prototype to execute import-export deals automatically using smart contract technology.
MAS also contributed to the launch of IBM's blockchain innovation center in Singapore back in July, and helped R3 establish the R3 Asia Lab, the first dedicated blockchain Center of Excellence in Asia in November.