Age of block-chain innovations: Extraordinary solutions for contemporary interbanking systems




Blockchain technologies are conquering financial field and makings headlines in global financial media for the last couple of years. The first bank to introduce these technologies in Azerbaijan was MuganBank. Adviser to the Chairman of the Board for the Bank Product Development & Sales Channel Enhancement Kamran Gasimov in an interview with the Azeri Observer Magazine sheds light on the details of this project and explains what benefits it brings to banks and their clients.

Q.: What problems did you want to solve with blockchain technologies? What did you introduce them for?

A.: Introduction of new technologies is indispensable in order to keep financial institutions competitive. I had been interested in blockchain technologies for a long time and I had an expectation that if we were the first to introduce these ultramodern technologies, we would have a lot of advantages and greatly benefit from them.

Firstly I with my team developed an action plan. One of the most difficult stages was to find a suitable foreign partner which would have a big experience in blockchain, good reputation in the banking sector and be easily available in case of system malfunctions in future. Long-term relationships and service prices also played an important role while selecting a future partner. First, we considered Masterchain Russian blockchain network, based on the Ethereum code base, which had been created to exchange and store financial information. Among the creators of this platform there are the largest Russian banks, including Central Bank, Sberbank, Alfa Bank, Otkrytie FC Bank, Tinkoff Bank and the QIWI group of companies.

In fact, Masterchain is a common space where various cases of financial transactions can coexist. However, in the course of market research, I discovered another blockchain called Permission. It is a public network, with a limited number of people allowed to make changes in the system. These people are defined in advance and they are the only ones who have rights to confirm transactions, audit, and manage database, as well as coordinate access of new participants to the system. Meanwhile, access to the information in this system can be both publicly available or severely limited. By choosing this particular blockchain type, we were able to have the capability of public ledgers, and at the same time use some restrictive features of private ledgers.

Q.: What are the advantages and disadvantages of public and private ledgers?

A.: In public ledgers it is impossible to maintain the confidentiality of customers, since the system is decentralized. Besides, there are some restrictions imposed by the regulator, and transactions are irreversible.

In private system, the transactions are cheaper and characterized by high speed confirmation, since they are checked by only a small number of high-performance nodes. In addition, the company that owns a private network can cancel any transaction if necessary and make changes to its balance sheet. At last, a network controlled by a single center is more convenient, as it makes possible quick update of the system and improvement of its functionality.

Therefore, we chose the Permission blockchain, which brought together the advantages of public and private ledgers. Of course, first we connected some partner banks to the blockchain system and used it in test model by sending and receiving conditional amounts of money. By now, all the flaws detected during the testing period have been fixed.

Q.: How successful was the project? What impact did it have?

A.: This project was undoubtedly successful. After the successful launch of the project, we managed to install our payment system in 12 local and 3 foreign banks with more than 680 branches throughout the country and worldwide. Currently, most of the banks in our country use it. We also start expanding to new markets like Russia, UAE, and Turkey. We already witness all the advantages of blockchain: increased transparency, consumer accessibility, system security, access to international markets. We were able to reduce costs, and thereby increase bank’s operating profitability. I have written several articles explaining positive effects of blockchain technologies and smart contracts, not only in banking sphere but also in other public sectors.

Q.: Who is the main beneficiary of this project?

A.: Our bank, our partner banks, and clients of our wire system all benefit from this innovative system.