Digital Banking Director of Raiffeisen Bank International: “SWIFT is far more powerful than Ripple”

At the end of last year, Raiffeisenbank International (RBI) became the first Austrian bank to join the blockchain consortium R3 (Trending Topics reported). Currently, more than 60 banks, financial service providers, technology companies, central banks, regulators and trade associations have joined the global network of enterprise software companies to test blockchain applications for their sector.

R3 was founded in September 2015 by Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, J. P. Morgan, Royal Bank of Scotland, State Street, and UBS. Up to now, there have been no efforts by R3 to issue its own cryptocurrency. Instead, R3 concentrates on the development of the distributed ledger platform Corda.

In addition, R3 was involved in a lawsuit with Ripple Labs concerning a purchase option of 5 billion XRP from 2016, which Ripple CEO Brad Garlinghouse did not want to grant to the competitor due to the massive increase in value. R3 received an investment of $107 million in May 2017 from Intel, Bank of America and HSBC Holdings, among others. Both startups are working on a new, centrally controlled blockchain infrastructure for the banks.

We met with Hannes Cizek, Head of Group Digital Banking at RBI, to discuss the plans and direction of R3, RBI’s stance on bitcoin and government regulation.

Why did RBI join the R3 consortium?

Hannes Cizek: There is currently no application of the blockchain that really works. There is still no product and no service running on the Blockchain in real operation. We want to try out a lot of things and know in this way at an early stage if there is a fundamental change going on within the banking infrastructure.

What concrete steps are being discussed in the R3 consortium?

The hub focuses on five areas: Capital market, digital assets, smart securities, issued bonds on ethereum and identity verification via the blockchain for the KYC process. Smart contracts for insurance contracts are of great interest to insurers. We want to explore together which distributed ledger technologies make sense in order to build up a comprehensive infrastructure know-how that will form the basis of future commercial blockchain applications. R3 is not a pure research event. One has the chance to experiment with proof-of-concept approaches. That’s why we joined.

As a representative of a large bank, how do you assess the development of the crypto market?

Future scenarios are very difficult to predict. We closely monitor the development and look which parts of our business model the blockchain technology can add value to. However, we are certain that the blockchain will provide a new infrastructure basis for certain applications.

There is still a strong socio-political momentum in the discussion about crypto currencies. This makes this market an issue for politicians and central banks. We deal with the underlying technology.

Ripple is often seen as a re-invention of the cooperative SWIFT, which regulates secure transfers between banks. Is this a field in which new solutions are sought?

Cryptocurrencies and the interbank system are something completely different. The Ripple token is only used in exchange and has an artificial value. However, thanks to the blockchain technology, we could potentially save costs through a private chain. That would be one of the biggest benefits for banks. SWIFT is much larger and more powerful than Ripple. There, trading is managed by more than 10,000 banks.

For us it is important that we can exchange ideas with like-minded people and test certain applications. The founders of R3 would certainly be very happy to see a new global banking infrastructure emerge from this system.

What kind of regulations does a bank want for crypto currencies?

Cryptos have the property to act decentrally. This means that there is no central body that can be regulated. Approaches to assign VAT to cryptocurrencies face the challenge of not being enforceable. European exchanges would be affected by such steps, but not the major international exchanges, such as Coinbase or Binance.

But there are legitimate approaches: Cryptographic currencies with a completely anonymous character like Monero must be assumed to be used for criminal activities. I cannot imagine that all cryptocurrencies will be banned, but the possibility of money laundering cannot be allowed to persist. The question is: Who is the contact person?

What is the current position of the European supervisory authorities?

They take the issue seriously. That’s a change compared to the situation twelve months ago. As with all topics that occur globally, a uniform solution is difficult. It is difficult to say how the currency will develop itself. Will it remain a hype or become a persisting phenomenon?

Do banks regard cryptographic currencies as a threat to their own business models?

Banks do not support cryptographic currency trading, because there are no rules. On the other hand, there are strict rules for consumer protection. The great volatility is an issue, as it would be for any other product. This specific risk lies with the customers themselves.

Internationally, there are examples of banks that have closed crypto-trader accounts. Would that also be conceivable at Raiffeisen?

The banks‘ motive for terminating accounts that are increasingly used for trading in cryptocurrencies is that cryptocurrencies are also abused for criminal activities. Another reason is that some local regulators prohibit the trading of cryptocurrencies. Even though virtual currency transactions are publicly visible to users in general, the owners and recipients of these transactions are not. Furthermore transaction from these accounts, unlike those on normal bank accounts, are not systematically monitored. The transactions can hardly be traced back and offer users of virtual currencies a high degree of anonymity.

Moreover, virtual currency providers are generally not regulated by the state. The virtual currency network can therefore be used for transactions that serve criminal activities such as money laundering. RBI generally conducts transactions in connection with virtual currencies, unless there are doubts about the origin of the money. In addition, customers are warned against the general risks associated with virtual currencies above a certain amount. Suppliers of virtual currencies are not currently accepted as customers or require a separate clearance by the Compliance Office of RBI.