Enterprise services giant IBM and CULedger, a Denver-based provider of distributed ledger services to credit unions, have announced a collaborative deal to provide credit unions with permissioned blockchain technologies.

Via the deal, the two parties aim to spur innovation across the lending sector and help foster “greater financial inclusion” they said in a joint announcement.
CULedger’s systems aim to aid clients with cyber security and anti-fraud activities, streamlining internal processes and reducing operational costs.

The parties believe that the permissioned blockchain enables the sharing of services among all credit unions, helping them with authentication and regulatory compliance, especially in know your customer (KYC) initiatives.

IBM has been working to introduce enterprise blockchain technologies in several verticals, including financial services. In September 2018, it officially launched its Blockchain World Wire (BWW) banking payments network, which uses the Stellar blockchain to clear and settle international payments between banks via an agreed digital currency.

Via that system, banks are able to deploy their existing payment systems to convert a fiat currency into a digital asset (token). IBM’s system then simultaneously converts that digital asset into a second fiat currency, completing the cross-border transaction, which is then immutably recorded on the Stellar blockchain for clearing.

The financial services industry has been in the vanguard of exploring distributed ledgers and so-called programmable money for some years. In July last year, for example, a number of European banks, including HSBC and Deutsche Bank, adopted their own we.trade platform.

But credit unions represent a new market for Big Blue. Globally, over 260 million people belong to such unions, according to Forbes – over 100 million of them in the US alone, providing savings and loan services to their members.

As mutual customer- rather than profit-focused entities, credit unions could provide a logical testbed for peer-to-peer financial systems, not to mention a fast track to mass adoption in the US and elsewhere.

In theory, blockchain-based infrastructures could help combat money-laundering and complex fraud by creating an inviolable chain of auditable data – though concerns remain about their power consumption, complexity, and (on occasion) habit of being full of coder graffiti.
Challenges also remain over blockchains’ compatibility with regulations such as GDPR, given the design-level impossibility of permanently ‘forgetting’ (erasing the data about) an individual, should they request it.

Last December, CULedger became a member of IBM’s R3 blockchain ecosystem, so this is the first fruit of that collaboration. The global R3 network now includes over 200 of the world’s biggest financial services firms, technology providers, central banks, regulators, and trade associations.

Be part of a discussion and connect with like-minded leaders in your sector at our exclusive event series on banking and RegTech.