By Tom Wilson and Simon Jessop
LONDON (Reuters) - Calastone, an investment funds transaction network, said on Monday it will shift its entire system to blockchain in May, a move that could slash costs for the sector by billions of dollars a year.
London-based Calastone provides back and middle-office services to more than 1,700 firms such as JP Morgan Asset Management, Schroders (L:SDR) and Invesco, helping them sell their funds across the world through banks and other local financial advisors.
The shift will see more than 9 million messages a month between those counterparties - worth more than 170 billion pounds ($217 billion)- completed on blockchain, marking a move into mainstream finance for a technology whose hype has rarely been matched by widespread usage in major industries.
Currently three separate messages are sent digitally between firms as they buy into a fund: one to place orders, another to confirm receipt, and a third to confirm the price.
Though more reliable than manual methods of communicating like faxes - still used by some in the industry - that messaging process is still cumbersome and time-consuming.
Moving to blockchain could slash as much as 3.4 billion pounds a year in global fund industry costs by pooling trading and settlement processes, Calastone said, citing research by consultants Deloitte.
Savings on such a scale would be a boon to the fund industry as it is buffeted by investor pressure to lower fees - its main source of revenue - and rising costs, much of it linked to tougher regulations after the financial crisis.
"The more you can automate, the more you de-risk, you more you streamline, the more you speed up," said Andrew Tomlinson, chief marketing officer at Calastone.
FROM HYPE TO REALITY?
Originally conceived to underpin the cryptocurrency bitcoin, blockchain is a shared database that can process and settle transactions in minutes. It does not need middlemen for checks and its entries cannot be changed, making it highly secure.
Proponents say it has the power to revolutionise industries from finance to shipping by making back office jobs more efficient. That prospect has sparked tests by banks and other financial companies across the world over the last few years.
But despite the hype, few blockchain projects have been put into practice in the finance sector, due in part to worries over costs, regulation and how widely used it can become.
Banks and asset managers are also concerned about the security of blockchain, said Matthias Huebner at consulting firm Oliver Wyman in Frankfurt.
"How secure is the technology? Is there a risk of fraud? Is there a risk of data just getting lost?" he said.
Still, Calastone said all of its users would see their trades move to the blockchain.
JP Morgan Asset Management and Invesco - listed as clients on Calastone's website - declined to comment on the shift when contacted by Reuters. Schroders, also listed as a client, did not respond to a request for comment.
Beyond finance, the majority of blockchain projects launched so far have been in peripheral industries such as ticketing or food supply chains.
Recently, though, others have been launched in the commodities sector, suggesting that the technology is catching on in major sectors.
Big oil companies and trading firms, for instance, are now able to finalise crude oil deals on a blockchain-based platform.