Why ABN Amro Wants to Separate Bitcoin from the Blockchain
30 May 2016, Bachir El Nakib (CAMS) Senior Consultant Compliance Alert LLC
For ABN Amro’s director of transaction banking, the company’s strategy on blockchain tech can be best described with a restaurant analogy.
If you were looking to enter the business, Karin Kersten argues, you might first invest in a restaurant. Next, you might try to get a feel for the workflow, washing dishes and observing existing staff. It's then, she said, that you might be ready to enter the kitchen.
It’s that final last stage that Kersten contends is most indicative of the activity at the Dutch bank, which boasts more than 22,000 employees across business lines including retail, private and corporate banking. A member of banking consortium R3CEV and the Linux-led Hyperledgerproject, and an investor in Digital Asset Holdings, ABN Amro has 30 employees actively working in the proverbial kitchen to investigate blockchain applications.
Kersten told CoinDesk:
"We are doing experiments and seeing if they work. We are learning by doing, and working on different levels. There’s not just one team working on the blockchain."
That’s not to say that ABN doesn’t have a more clear strategy for how it intends to move forward and which versions of the technology it deems more relevant for its business. As with many other major global banks, ABN is focused on distributed ledger aspects of the technology, and isn’t working with digital currencies such as bitcoin.
"If you look at our view regarding the blockchain, we want to clearly separate bitcoin from the blockchain. There’s bitcoin as a method of payment, and blockchain as the technology behind it. The latter we find interesting to explore," she said.
Kersten indicated that ABN is investigating matters related to trade finance and transaction banking, and how blockchain smart contracts can be applied to problems in these areas.
In line with its focus on distributed ledgers, Kersten said that ABN is not as focused on payments applications of the tech, which she said the company views as being more problematic from a regulatory perspective today.
Letters of credit
That’s not to say that ABN Amro isn’t looking to better develop an understanding of how the tech could be applied broadly.
One area of study for the bank, Kersten said, is how the technology could play a role in the issuance of letters of credit, in which a bank guarantees that a buyer’s payment will be received according to an agreed set of conditions.
However, to start, Kersten explained how the ABN team approached this challenge by first talking with clients to understand the issues with current versions of this product. In the end, Kersten said this method found the bank deviating from its standard strategy, in which IT requirements dictate what is built.
"Here the experiment is completely different. We had a hypothesis and tested it, then pivoted," she said.
Kersten said that ABN is now entering the second phase on this prototype and that it could advance this concept to the minimum viable product (MVP) stage, but that this process is taking time, a willingness to iterate and patience.
"We want to learn about the content of the blockchain and see if there are interesting MVPs for clients. In the end, we want to add value," she continued.
The proof-of-concept is currently being built on the Ethereum blockchain.
The Director of Transaction banking Karin Kersten thinks that the strategy of the bitcoin on blockchain looks like a restaurant analogy. She says they are doing different experiments and wants to learn by working on the different levels. There are many teams working at the bitcoin but around 30 employees are working on the investigation of the blockchain applications in the proverbial kitchen. According to her view, she wants to operate separately from the blockchain as they wants to explore it. She also stated that the ABN is investigating the whole matter related to transaction banking and trade finance and they are not only focus on the payment applications.
She says we are not looking to promote the understanding about how the technology can be implemented broadly. One of the major areas requires study is the role of the technology in the issuance of the letter of credit, that include a bank guarantee that the payment of the buyer will be received as per conditions of the agreement.
Further Kersten said that the company is now progressing to the second phase, which can advance this to the stage of Minimum Viable Product. She further continued by saying that the ABN wants to learn the blockchain content and see is there any interesting MVPs for the customers.
Product Over Technology
Kersten said the company is looking to focus on the lower level parts of the stack as they already works with the technology as well as IT companies such as Tata Consultancy Services and IBM.
She also acknowledges that the ABN will require a deep understanding of different processes such as time to select a public or private blockchain platform. She also states that learning is also required regarding the designs that will allow the all parties to access the system of ledgers.
At least she says that it is not always sure that this kind of projects can lead to the conclusion of the technology will be customer. Rather, she would like to see ABN Amro work on other components of its tests, namely, the top- and mid-level applications that facilitate communication between an application and a blockchain.
"You have to make a basis choice per application if you want open-source or closed-source technology, but we want to make valuable applications which are relevant for our customer base," she said.
Still, Kersten acknowledged that ABN will likely need to deepen its understanding of parts of this process, such as when to select a public or private blockchain platform, and which design will best allow the necessary parties to access the ledger system.
But, Kersten said that projects like this don’t necessarily lead her to conclude that the technology will be ready for consumers soon.
Kersten told CoinDesk:
"When will it be on the market? When will it have scale? We don’t know. What we know is that it’s a promising technology."