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What makes quality assurance (QA) essential in a banking blockchain

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Signum Capital backs real estate Blockchain platform, Konkrete

Even as the acceptance of blockchain as a reliable technology widens in the banking sector, software quality assurance will be a must to ensure these projects succeed

Written by Vivek Porwal, Sr. VP & Delivery Head – Banking, ‎QualityKiosk

Perceived to be used only for the trading of cryptocurrencies initially, the decentralised electronic ledger technology, popularly known as blockchain, is being employed for multiple purposes by organisations world-over. From insurers (and hospitals) sharing patient health records to consumers sharing excess electricity with each other and with the power grid, to the casting of votes in an election—blockchain offers limitless possibilities to transferring information (or money) securely and transparently.

According to a report published by Grand View Research, the global blockchain technology market is predicted to touch $7.59 billion by 2024, growing by 37.2% year-on-year. The industries driving growth in adoption of blockchain technology include banking and financial services, consumer or industrial products companies, information technology, media and telecom, healthcare, transportation, and public sector undertakings. As per a study conducted by 6Wresearch, India’s blockchain technology market is predicted to grow by 58 per cent annually from 2018 to 2024.

Blockchain in banking

Vivek Porwal, Sr. VP & Delivery Head - Banking, _QualityKiosk

Vivek Porwal, Sr. VP & Delivery Head – Banking, _QualityKiosk

One of the key sectors that can leverage blockchain technology to its fullest advantage is banking. According to a study by Juniper Research, blockchain deployments will help banks realise savings on cross-border settlement transactions of more than $27 billion by the end of 2030.

While multiple use cases are available in banking, as per a Reserve Bank of India report by the Working Group on FinTech and Digital Banking, the banks in India are permitted to set up permissioned blockchains for centralized KYC, cross-border payments, Trade finance and syndication of loans, besides for their internal purposes.

Starting with ICICI Bank, Kotak Bank and Axis Bank in 2016, more and more banks are looking at examining blockchain’s potential. Given this scenario, as a technology, blockchain is here to stay. For example, in an industry-wide private blockchain deployment, multiple banks can be the participating members. Using such a network, customer KYC documents can be safely shared with each other for cross-validation and to avoid duplication of document processing. Similarly, a blockchain network can be deployed at a global level with participating member banks using it for executing cross-border payment transactions securely. Quality assurance (QA) testing becomes essential in each of these applications of blockchain to ensure that the technology works smoothly delivering the desired benefits.

Industry-wide blockchain

Consider centralised KYC as a hypothetical use case example to examine the role played by QA. In an industry-wide permissioned blockchain in which several banks are participants, the process begins with a bank registering itself as a participant. Upon registration, it starts onboarding its customers by uploading their KYC documents to the blockchain network. This data gets converted from images to Hex format at the blockchain level. The bank also whitelists a few other banks on the network it is willing to share its customer KYC data with. Functional and workflow testing become crucial to ensure that the entire process is followed methodically and without errors.

When a whitelisted bank requests for another bank’s customer KYC data, the requester bank is then provided access to that data for a consideration in a currency accepted by all participating banks which could be a virtual currency. The system also needs to be tested for access rights, data privacy, authentication, and transaction consideration.

The data access request and retrieval involve data conversion (to Hex format) and reconversion (back to images) for retrieval, making checks for data sanctity and fidelity (accuracy, protection from loss or tampering, etc.) essential. Auditability, authenticity, data ownership, and Blockchain security controls are other important areas QA testing addresses. As the process is driven by API integration between blockchain framework and application and hence API testing, business rules & workflow at applications layer and data conversion at blockchain layer are important functions fulfilled by QA.

A few other areas where QA testing plays a major role include usability / Compatibility testing, privileged access management testing, ensuring low response time (performance testing), data encryption, storage and retrieval testing, and security testing.

Blockchain adoption considerations

Even as banks look at investing in the permissioned blockchain model, there are a few critical elements they will need to consider to keep risks under control. Examining a few critical aspects beforehand may help a bank conduct quality assurance for any permissioned blockchain implementation successfully.

  • Architecture assessment: Examine the technology architecture and design to be used for the Application presentation layer, API layer to integrate with blockchain framework and the blockchain platform (like Hyperledger Fabric, R3 Corda, Ethereum, Mutlichain, etc). Consider whether nodes are to be hosted on public or on-premise (private) cloud which consensus mechanism are used. 
  • Use Led QA: Consider the end user of application from the perspective of Bank to cover the Bank end QA of app and from Consumer perspective cover the User Experience led QA to ensure that no compromise of quality, Speed of delivery and end User Experience due to technology stack. It is expected to be even better experience then having traditional multi-hand shacking apps. 
  • Process flow and integrations: Examine how the existing interfacing systems are connected with blockchain framework. Assess whether the solution is geared to work seamlessly with the bank’s internal systems. 
  • Data encryption: Ensure the data and images are encrypted and stored in blockchain and decrypted &retrieved in an error-free manner. The privilege controls within the network and the access provided to other participants nodes need to be clearly defined and tested.
  • Compliance testing: Ensure the regulations related to customer data privacy and other aspects such as storage, authentication and verification are being complied with.

An ongoing process

Software quality proves essential not just at the beginning of a blockchain-based centralised KYC, remittances, clearing and settlement, trade finance, loan syndication, etc., but even afterwards. The use of blockchain by banks may be limited in the initial days. However, as the technology matures, banks will expand the scope of blockchain projects, further making quality engineering an essential component of these initiatives.

Banking

Banks in EU to publish world’s first ‘green’ yardstick from next year

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Banks in EU to publish world's first 'green' yardstick from next year 1

By Huw Jones

LONDON (Reuters) – Banks in the European Union would have to publish a groundbreaking “green asset ratio” (GAR) as a core measure of their climate-friendly business activities from next year, the EU’s banking watchdog proposed on Monday.

As the trend in sustainable investing gathers pace, regulators want investors to get more reliable information on a bank’s exposures to climate change as storms and other weather events affect the value of their assets and liabilities.

The European Banking Authority (EBA) said the ratio, put out to formal public consultation on Monday, will measure the amount of climate-friendly loans, advances and debt securities compared to total assets on a lender’s balance sheet to reach a percent figure.

“I believe it’s the first time regulators are asking for a green asset ratio,” said Piers Haben, EBA’s director of banking, markets, innovation and consumers.

“The numbers may well be single digit for banks at first and that’s why context will be important. When a bank talks about where it wants to be in 2030, that is going to be really interesting on the green asset ratio.”

The new EU “taxonomy” would be used to define which assetsare environmentally sustainable.

EBA said that many stakeholders have a legitimate interest in the physical and transition risks that banks are exposed to from climate change.

Banks are likely to face pressure from investors to show what steps they are taking to increase their GAR over time, though few lenders are expected to reach 100%.

The watchdog was responding to a request from the EU’sexecutive European Commission on how to implement upcomingrequirements on climate-related disclosures by banks.

The GAR would published in a bank’s annual report, starting from 2022 based on data up to Dec. 31, 2021.

Banks will also have to publish three other indicators showing the extent to which fees from advisory services, major trading operations and off-balance sheet exposures are derived from climate-friendly activities.

(Reporting by Huw Jones; Editing by Ana Nicolaci da Costa)

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Banking

SoftBank’s internet business to invest $5 billion to resist overseas tech giants

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SoftBank's internet business to invest $5 billion to resist overseas tech giants 2

By Sam Nussey

TOKYO (Reuters) – SoftBank’s internet subsidiary Z Holdings outlined plans on Monday to invest 500 billion yen ($4.7 billion) in technology over five years to resist an onslaught from larger overseas rivals.

The announcement follows the merger of its internet business Yahoo Japan with chat app operator Line, creating a $30 billion domestic internet heavyweight.

Z Holdings said it is targeting sales of 2 trillion yen and operating income of 225 billion yen in three years, as the COVID-19 pandemic boosts demand for online services.

Following a complex transaction, two thirds of Z Holdings shares will be owned by a new holding company, A Holdings, owned 50:50 by SoftBank Corp and South Korea’s Naver Corp.

Z Holdings remains a consolidated subsidiary of SoftBank. Naver was the previous majority owner of Line.

The CEOs of Z Holdings and Line, Kentaro Kawabe and Takeshi Idezawa respectively, become co-CEOs of the combined entity, reflecting the hybrid origin of the firm which straddles e-commerce, payments, advertising and chat.

Kawabe pointed to the breadth of those services, many of which are deeply embedded in the lives of Japanese consumers, as its defence against rivals like Google parent Alphabet and Amazon.com and their larger research budgets.

In an early indicator of efforts to save on costs, Z Holdings said it was looking to integrate Line’s QR code payment service Line Pay into peer PayPay, which SoftBank has promoted aggressively to attract consumers away from cash, in April 2022.

Z Holdings retains its listed status, one of a number of such firms among SoftBank’s domestic holdings, despite calls for Japanese firms to unwind such structures.

Z Holdings also controls online fashion retailer Zozo Inc and office supplies firm Askul Corp.

($1 = 106.5600 yen)

(Reporting by Sam Nussey; Editing by Kirsten Donovan, Christopher Cushing and Raju Gopalakrishnan)

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Banking

Strong second half limits Bank of Ireland 2020 loss

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Strong second half limits Bank of Ireland 2020 loss 3

DUBLIN (Reuters) – Bank of Ireland limited its underlying 2020 loss to 374 million euros ($452 million) after a return to profitability in the second half, the bank said on Monday.

Ireland’s largest bank by assets also announced the closure of one-third of its branches in Ireland.

The bank set aside 1.1 billion euros to cover possible loan defaults due to COVID-19 disruption, the bottom of its forecast range that it expects to capture the majority of credit impairment risk associated with the pandemic.

An underlying 295 million euros second half profit limited the damage as lending and business income improved.

Chief Financial Officer Myles O’Grady said those trends continued into 2021, although Ireland was in a long lockdown again.

“It’s clear that there is some impact from this lockdown but the signals overall are encouraging. We do think (the second half) will be a return to a more normalised level of activity,” O’Grady told Reuters.

The bank cut it costs by 4% year on year in 2020, meaning it achieved its 1.7 billion euro annual cost target one year early. It set a new goal of cutting costs further to 1.5 billion euros by 2023.

That will partly be achieved by the branch closures with its Irish network cut to 169 from 257 and Northern Irish presence more than halved to 13. It struck a deal with the Irish post office to offer customers access to banking services at An Post locations.

Bank of Ireland’s core Tier 1 capital ratio, a key measure of financial strength, stood at 13.4% versus 13.5% at the end of September. The bank said it expected capital to remain broadly in line with those levels in 2021.

Analysts at Davy Stockbrokers said the results were “better across income, costs and, notably, impairments.”

($1 = 0.8272 euros)

(Reporting by Padraic Halpin; Editing by Edmund Blair)

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