One of the first banks to become involved in the blockchain space, German online bank Fidor has long been quiet about the shifts in its tech strategy even as more financial incumbents have followed in its footsteps through investments and partnerships.
Just how early was Fidor? While many banks continue to investigate the technology through proofs-of-concept and consortium efforts, Fidor integrated Ripple during the bitcoin craze of early 2014, even going so far as to attempt to build a bitcoin bank with exchange partner Kraken that never materialized.
Despite these investigations, the online bank has largely remained absent from major consortium efforts, choosing instead to focus on development.
“We’re more hands-on and we like to develop something and see how it works … We’re interested but we’re just not interested in sitting down and talking,” Patrick Gruban, CIO of Fidor TecS, told CoinDesk.
The interview found Gruban opening up about the company’s evolving blockchain strategy, and how Fidor TecS, its digital banking division, is experimenting with blockchain services. In particular, Gruban honed in on a recent project in which Fidor sought to replicate the core banking services its customers use today.
Gruban told CoinDesk:
“We have a lot of examples out there of people doing payments on the blockchain, of people doing exchanges and markets, but customers still come to us saying we have a fast software but I still need a traditional core banking system. The idea was to ask, ‘Is it possible to use these ledger systems in that way?'”
Gruban said he foresees permissioned blockchain-based systems replacing traditional low-level banking services, given that current systems cost banks in the tens of millions of dollars annually to maintain.
Distributed ledgers, he suggested, could come to oversee customer accounts, loans and certificates of deposit, with different banks, data centers and regulators sharing information as part of a drive to reduce costs and boost security.
“It’s not about reducing costs by 10%, it’s about reducing costs by a factor of hundred. That’s what gets me excited, because that is something that is not on the radar,” Gruban said.
As for how integral the project is to Fidor, Gruban hinted that this particular one may not be moving forward, but that it’s indicative of the efforts his innovation team is making to investigate how blockchain could offer broader benefits.
The prototype
As explained by Gruban, the banking services prototype began as an attempt to replicate basic customer accounts in an Ethereum-based blockchain system.
Accounts were built to store balances, overdrafts and account holds, and owners passed know-your-customer (KYC) and anti-money laundering (AML) checks. When bank users wanted to exchange funds in the test, accounts would query the ledger and make the exchange.
The ledger would hold all account information and ensure users have the necessary funds to execute transactions, but not hold funds directly, with users and administrators connected to the network through APIs.
“It’s using the best of both systems, not trying to do everything on the blockchain, but those transactions and those steps that have to be validated and distributed and secured,” he said.
Nodes on the network would then be able to post interest payments to accounts, add or remove holds on accounts and perform functions such as calculating loan amounts and executing basic loans, controlling factors such as the amount, duration and interest.
Even while the specific trial is not moving forward, Gruban still suggested he sees similar systems being more widely used as blockchain tech becomes more widely adopted
“This is where we think it really makes sense from the financial companies,” he said.
Ethereum interest
Gruban said Ethereum’s technology fit the project as Fidor wanted to explore use cases that went beyond simple asset exchange, such as providing customers loans.
“Using Ethereum it was a very easy thing to do, it was 200 lines of code in Solidity to write a model where it can really load up an account with fiat currency and send money between accounts,” Gruban explained.
Notably, Gruban said Ethereum is attractive as a platform because of its public nature, even though Fidor or another bank might seek to use a private version of the platform.
Gruban noted that transaction security in such systems will be paramount, and that public blockchains are rigorously tested just by being active in the market.
“Ethereum is out there being used by a lot of people,” he said. “We’ll be coming to a point soon where we can say this has been tested more than any core banking system.”
Gruban also said that Fidor has leveraged Microsoft Azure’s Blockchain-as-a-Service platform, and that the ability to spin up a prototype via its BlockApps helped move the project ahead quickly.
This fast-moving approach to innovation, Gruban indicated is indicative of Fidor’s style, which he contrasted to efforts like the Linux-led Hyperledger project. However, he noted that the available technology offered by tech giants is helping to speed up Fidor’s investigations.
“We’re doing many PoCs, [but] we don’t publish because it would be easy for others to copy. We’re just waiting and communicating only to certain customers,” he continued, adding:
“What I’m showing here, the Ethereum project is something I did in a few days while doing other projects. We move pretty fast.”
Images via Fidor Bank; Fidor Facebook