AFR Oct 16 2018 Identitii hits ASX asbanks look to blockchain to...

AFR Oct 16 2018

Identitii hits ASX asbanks look to blockchain to monitor payments

Identitii, whose blockchain software is currently beingused by HSBC to improve cross-border payment compliance, will list on theAustralian Securities Exchange on Wednesday morning.  Identitii, whichraised $11 million in an initial public offering and is expected to hit theboards at 11am (AEDT) with an indicative market capitalisation of $41million, has 30 staff in Sydney and its seed investors include UBSinvestment banking heavyweight Matthew Grounds and Latitude Financialchairman Mike Tilley. HSBC is using the technology to attach moredata to some payment instructions sent over the global Swift network. It is understoodthis is the first deployment of a live blockchain in a global bank tomanage compliance. The Swift network exchanges about 30 million messages eachday. Swift is hosting its annual global conference, Sibos, in Sydney next week.Identitii's blockchain could be used to transfer data and documentson any network, including the "new payments platform" (NPP)infrastructure, which was also built by Swift, in collaboration with themajor Australian banks and Reserve Bank of Australia.  KTM Capital andCanaccord Genuity are joint lead managers of the float, which was firstrevealed in Street Talk. The deal has been delayed for about a month, as theASX took longer than anticipated to conduct checks on the company's"shareholder spread", or the number of shareholders not affiliatedwith the company. by James Eyers ANZ WBC MQG Identitii will join otherASX-listed blockchain players, including DigitalX and Ookami. ASX itselfis also developing blockchain technology to settle and clear the entireequities market. Institutional investors in Identitii include ParadiceInvestment Management, Terra Capital, KIS Capital, and The Lind Partners fromNew York. "Identitii has proven real world use for blockchain technologyand is solving an incredibly difficult problem for the global bankingsystem," said the chief investment officer from KIS Capital, JoshBest.  Swift limitations The Swift network essentially managespayment settlement instructions sent between banks, but the amount ofdata that can be attached to messages is limited. This has become agrowing problem for banks, which need to explain the purpose ofpayments more comprehensively to meet stricter anti-money launderingregulations.  HSBC, which has been embroiled in a money laundering scandalfor much of this decade, is using Identitii's Overlay+ application tomonitor internet banking of clients in India who do many international moneytransfers. This is allowing it to cut back on manual processing by internalteams, mostly emailing the "purpose of payment" alongside the Swiftpayments moving between global HSBC subsidiaries.  It's understoodStandard Chartered is considering adopting the Identitii system;it has already trialled it along with JP Morgan, Rabobank and Barclays. TwoAustralian banks – Westpac Banking Corp and Macquarie – have also pilotedIdentitii technology. It's understood Westpac is exploring how the system canbe used to improve Related Quotes ANZ BANK FPO (ANZ) $25.55 0.00 0.00% volume 0value 0.0 5 YEARS 1 DAY View full quote ASX Announcements Oct13 Jul17 Oct18 2530 23.144 36.037 Last updated: Wed Oct 17 2018 - 8:45:21 AM monitoring ofcorrespondent banking relationships.  Identitii is earning somerevenue from the HSBC contract but it is at the early stage and the prospectuscontained no financial forecasts or guidance.  Local banks are exploringregtech solutions to enhance compliance in the wake of the Commonwealth Bank'smoney laundering scandal.  Blockchain technology is useful because itcreates an auditable, historical record of the message and time stampsit.  "We can provide an overlay to legacy systems, which can be lessdramatic and costly than ripping up and replacing old systems. It could beuseful to anyone doing cross-border exporting or moving a large amount of material,"says Identitii's co-founder and CEO, Nick Armstrong.   "Thisisn't some forward-looking proof of concept. This is a use case for blockchainthat is here today and in production – the use case is informationsharing. Information sharing can be separate from settlement." Big savingsEnhancing the quality of information over Swift could save banks more than $100million per day.  Identitii reckons about 8 per cent of internationalpayments are held up due to missing or incomplete information as risk-aversebanks are doing more checks. It costs around $US50 each time apayment is stopped to check it and get it moving again. So that amounts to$US120 million every day across the global network, given its 30 million dailytransactions.  Banks typically pass most of that cost on to all customersconducting international transfers over Swift: the cost of error processingmeans the typical transaction cost for any transfer is around $US30, eventhough Swift charges a bank only cents. The quantum of such cost savings meansIdentitii is facing growing competition. For example, JP Morgan hascreated a similar blockchain, called the Interbank Information Network, whichis being tested by more than 75 global banks, including ANZ BankingGroup.  ANZ WBC MQG The use of blockchain to enhance bothregulatory compliance and cross-border payments will be explored at thebig Sibos event next week in Sydney, at which Mr Armstrong willappear on a panel. Identitii was identified by Swift's innovationdivision, Innotribe, in 2016.  There is a big opportunityfor Identitii to be a significant blockchain provider inthe ASEAN region, Mr Armstrong said, by helping to govern un-harmonisedregulation. It could also help to power "open banking" by managingcomplexity around permissioning. Regulations such as GDPR inEurope should also be a driver of demand for the software, Mr Armstrongsaid.  It was a tough decision to keep Identitii in Australia asit strove for scale over the past few years. But Mr Armstrong said a smallgovernment commercialisation grant of just $1 million allowed it to get throughthe funding "Valley of Death". The ASX also provided a forum forfunding to be raised quickly, not withstanding the escrow check delays over thepast month. Identitii's previous, private funding rounds each tookeight months; this IPO has been concluded in five.