Union Bank of the Philippines, the finance unit of the Aboitiz Group, became the world’s first major bank to pilot test a cross-border fund transfer using the revolutionary blockchain platform, the same digital technology that created bitcoin.
“Unionbank was the first in the world among the universe of banks to actually pilot this transaction in the blockchain,” UnionBank chairman Justo Ortiz says during the announcement of partnership between the bank and global payments solutions company Visa for the testing of Visa B2B Connect, a blockchain platform designed to give financial institutions a secure, fast and predictable way to process cross-border business-to-business payments.
Blockchain, developed in 2008, is a digital technology that records blocks of information that are identical across all networks and are linked and secured using cryptography. It is known for being transparent, secure and incorruptible. This technology gave rise to bitcoin, the first virtual currency.
Visa first announced the intention to launch Visa B2B Connect in October 2016. Visa has its own network of data centers and digital infrastructure. “We believe that we are one of the first in the world to leverage on this technology for cross border payments,” says Visa head of B2B partnership in Asia Pacific Vikram Kshettry.
Visa has built B2B Connect using features of blockchain technology and UnionBank of the Philippines was the first to test the technology in Singapore in November 2017. Visa is currently testing bank to-bank transactions with three other banks including Commerce Bank of the United States, Shinhan Bank of South Korea and United Overseas Bank of Singapore.
“There is a reason why we chose UnionBank. It is because they are forward looking and they are reinventing themselves as a technology company,” says Kshettry.
UnionBank is reinventing itself as a financial institution that heavily uses digital technology. It was the first Philippine bank to introduce an internet-based deposit account with no minimum balance called EON. It is a leader in electronic banking and it developed the first integrated web platform called OneHub.Gov for e-government initiatives.
UnionBank senior vice president and chief transformation officer Henry Aguda says the bank first discussed blockchain more than a year ago. “So we can say we are the first bank to talk about blockchain. With our partnership with Visa, we are the first Philippine bank partner in using the blockchain. You will hear more about blockchain from us in the coming weeks or months,” says Aguda.
UnionBank has an open application programming interface or API strategy and holds hackatons to encourage students and professional programmers to develop new applications using the bank’s API.
“I can’t tell you the specific projects, but we can tell you we have several Unionbank programs on the blockchain. We are working on specific projects,” says UnionBank president and chief executive Edwin Bautista. “We announced sometime ago that we can now share our APIs with partners, institutions and even fintechs [financial technology companies]. And that has speeded up our connections.”
Ortiz says that by being the first to test Visa B2B Connect, “that tells us we do have the capability at the world-class level to be able to embrace this new technology and to use it to fulfill our purpose of elevating lives.”
Ortiz says the partnership with Visa ensures that the process complies with international banking standards when it comes to governance and risk management. “We do not just want to maintain the trust, we want to enhance the trust in this new technology in this new digital environment. With this Visa B2B Connect, we have that,” he says.
Ortiz says Visa B2B Connect will allow small and medium enterprises to transact with other businesses overseas and make payments and fund transfer easier. “This one now is an opportunity for us to make a difference in the corporate space, in particular with SMEs that do not have these huge back offices and accounting departments to process all these transactions cross border,” he says.
Ortiz says by working with Visa, banks have the opportunity to take advantage of blockchain technology. “That makes this very real, very possible and very workable but enhancing the trust that we have, enhancing the productivity and efficiency of the bank, enhancing customer experience and at the same time, allowing us in UnionBank to build our capability working with a world-class organization like Visa,” he says.
Bautista says before the onset of digital technology, businesses, particularly exporters and importers, needed to open correspondent banking accounts in many countries to transact with foreign customers, clients or partners.
“If you want to deal and move currencies around the world, you have to open correspondent banking accounts in every country that you want to deal with. That’s how tedious things were,” Bautista says.
Bautista clarifies that Visa B2B Connect will not trade cryptocurrencies such as bitcoin. “We are not against bitcoin. Many of us love bitcoin. I actually own bitcoin. But not everyone trusts bitcoin. So we now have a situation where if we can do the same thing, and in this case ride on the blockchain but have an existing infrastructure to be able to move money, in this case with Visa rails, then you actually have much better and superior solutions,” he says.
“Here you have a perfect situation because banks are already dealing with each other through Visa rails, so we have KYC [know your customer] corporates all over the world. It is very powerful,” Bautista says.
Bautista says the digital platform will also reduce the cost of moving funds across national borders. “It will also reduce our own operating cost. Our expectation is that cost will go down significantly. It is a way to empower Filipino SMEs which are a major focus for us and the economy in general,” he says.
Bautista says around 500,000 SMEs in the Philippines have the opportunity to benefit from the new digital platform. “We would like to touch the lives of every SME. It is very important that small guys grow together with the economy. It is a major commitment of the bank to the economy,” he says.