Credit unions also have an opportunity to leverage distributed ledger technology to disrupt cross-border payments. Currently, sending and receiving funds internationally is a slow, expensive process, taking a day or two to clear and typically costing between two and three percent of the value of funds transferred. In some cases, the cost can exceed 10 percent, depending on payment volumes and values.
DLT presents an opportunity to shift away from slow, costly wire transfer services by reducing the cost and accelerating the speed of transactions. This new technology can address the points of friction historically associated with cross-border payments, which conducts transactions almost immediately while reducing operational costs associated with these transfers. The natural security features associated with DLT can also help reduce risk associated with international remittances.
While loan participations embody the cooperative philosophy — spreading the risks among borrowers while sharing the rewards of strong yields — they are often viewed as challenging, complex and come with increased regulatory burden.
As the current process stands, whenever loans are syndicated by credit unions, one organization is chosen to lead in constructing and managing the deal while the others essentially become passive investors. This process can be highly disadvantageous to credit unions because the leading organization bears the weight of managing the workflow while the others must rely on, or trust, the leader to share all relevant information. The risks associated with loan participation can cause tremendous barriers to syndicate loans together.
Just as with indirect lending and cross-border payments, blockchain is positioned to completely transform loan participation for credit unions. By utilizing a distributed ledger network, blockchain stores and spreads information regarding the loan across participating organizations, allowing for full transparency throughout the process, eliminating the need for a leader and ultimately reducing risk.
These examples are just the tip of the iceberg in terms of discovering blockchain’s potential. Financial cooperatives around the world are working together to uncover ways this new technology will benefit members and change the banking experience. Indirect lending, cross-border payments and loan participation are simply a few illustrations of this new technology’s impact on financial services. From streamlining processes, to cutting costs and reducing risks, blockchain holds the promise of endless possibilities to disrupt the status quo in financial services, and credit unions are front-and-center of this digital revolution.
Julie Esser is chief experience officer of CULedger, a CUSO that focuses on delivering innovative applications to credit unions through its cross-border global distributed ledger platform. CULedger is an IBM Blockchain partner. For more information, please visit culedger.com.