Interviewed By The Asian Banker Live
Jesse Chenard, founder and chief executive officer of MonetaGo, believes that collaboration and not competition between players will drive the success of blockchain technology.
Emmanuel Daniel (ED): I'm speaking to Jesse Chenard, the founder and chief executive officer of MonetaGo. MonetaGo is a service provider playing into blockchain technology and how to incorporate that into existing technology of banks. Also important is the fact that his organisation is a founding member of the Hyperledger project. Thank you very much for speaking to me today.
Jesse Chenard (JC): Absolutely, it’s very nice to speak with you.
ED: Give me a sense of two things. One is of MonetaGo; what exactly do you do? And the second is your membership in Hyperledger Project. What are the key objectives of the Hyperledger Project and where this community trend in building blockchains.
JC: MonetaGo was founded about two years ago. My background is in the technology space. I have been starting companies for about 15 or 20 years, now.
We saw the opportunity to leverage blockchain technology behind digital currency for financial institutions; and to try to make a better network for them to communicate, to settle, and to clear and to do their messaging. We have established entities in about eight different countries around the world. We have spoken with central bankers, regulators, and banks. The banks are really our clients. They are the ones who have this drive to reduce costs, simplify infrastructure, enable new services and bring on a lot more clients.
ED: So, for a company like MonetaGo, for you to say that you’re going to sit on top of existing infrastructure and legacy infrastructure, it sounds to me like you actually start with more services rather than a product.
JC: It’s a bit of both. There is a consultancy angle to this right now; in that, these companies that are coming to us have no knowledge and no expertise in this space, and there aren’t a lot of engineers or experts out there. So we can act as their in-house research and development team to work with them, hear what their business needs are, and then tell them how we can help implement that and integrate it into their legacy system.
So the stuff that they built around reporting, compliance, and the regulatory pieces that they have to do, they can still all function as it does today; but they then also get this new platform that really opens up a lot more possibilities for them.
Setting up blockchain technology
ED: Tell us the connectivity or the integration of setting up a blockchain capability over and above existing core banking technology. Some of that is very specific, isn’t it, to trade finance, to payments?
JC: The potential for blockchain is pretty far and wide. Anywhere you have a legally binding contract that has to be notarized and time stamped; anywhere you’ve got payments that need to be settled and cleared – trade finance, more complex operations, letters of credit, credit reporting; all of these things can be enabled by blockchain. Not necessarily that they should be, but there is that possibility. As we start to look at banks and how they reduce costs and how they share infrastructure, it becomes a very attractive model to them.
Every one of them is now building out their core banking infrastructure and there is a lot of duplicated cost; there is a lot of duplicated processes, and you can’t know your customer and compliance. And then there’s a lot of overhead from the regulators to be able to pull the information out of their systems to do the reporting that they need.
That is a big paradigm shift. It’s basically taking it from a hub and spoke model where every bank has to go through an intermediary to speak to another bank – creating a distributed, more broadcast model where they can do their operations locally such as transfers of payments or any number of different things, and then just broadcast that out to the network to make them aware of it.
ED: The banks that you are already talking to, what are they focusing on at the moment? The questions of the banks that you’re speaking to, what are the top of mind projects that are coming on stream?
JC: You’ve probably heard a lot about trade finance. The reason for that is because most people are afraid to touch payments right now. And the reason for them being afraid to touch payments is because they haven’t really rationalised how to deal with digital currency, especially from a central bank level. You’ve probably heard of Bitcoin and its phenomena around the world, and most central banks, although they haven’t said it’s illegal, they don’t really approve of their banks dealing with it or using it. So what we have come to with the banks is that payments are very important. Trade finance involves payments.
But they’re just using it as the record keeping. And like I said, there is a lot of power in the immutability of a blockchain and the security of it to record things like contracts and create these types of things. Our belief – and we’ve got a lot of banks that we’re working with swayed over to this belief – is that payments are integral to most of these different operations. But it’s a fine line that we have to walk because of all of the payments, especially in some countries like India where there are no bilateral agreements allowed.
I can’t settle across with just one other bank. I always have to go either through the National Payments Corporation of India or the Reserve Bank of India. In this case, we still need to make sure the new system is speaking to the old system. We can’t just go in and say “hey, this is the new way of doing things.” We have to make sure that we’re not stepping on anyone’s toes – that we are giving the regulators a chance to look at this technology, evaluate it, and work with us to come up with ideas on how to improve their processes.
ED: The funny thing about introducing blockchain to sit on top of an existing system is this: blockchain itself, as a concept and a technology involves a lot of collaboration and a lot of data flow between parties that it creates a lot of infrastructure around itself. It’s a very infrastructure-heavy model. And then on top of that, you want it to sit on existing legacy models and infrastructure. It slows it down; it carries a lot of legacy thinking in terms of the models you work with. Is this too incremental for something that can revolutionise the industry?
JC: I would say no. I would say it doesn’t slow it down because it runs in parallel – what we’re proposing. And really when you think about it, even these trade finance examples that are coming up, where are they going to run them? What blockchain can they run on? There is no public blockchain that’s not out of beta, which would be a thorium in beta, still.
ED: My point is this; that what used to be the back office and the middle office of a traditional transaction that a bank does today sits on the blockchain. It should, shouldn't it?
JC: Yes, absolutely. But we have to get there. And we have to do it in such a way that we can show our security, we can show our scalability, and that we can do it with the buy-in of all the parties involved.
To say that everybody needs to change right away, first of all, what I’ve learned from the digital ledger technology side of things and the bitcoin space is that we do not know a large fraction of what goes on in the back and middle offices of banks. There are many processes, many different interdependent departments that work as a cohesive unit to deliver fundamental services.
ED: That, in many respects, doesn’t make sense. In many respects it is unnecessary.
JC: There is a lot of duplication of things. I spoke with a bank yesterday who said they have 22 different product lines. If I go into that bank today and open a bank account, I need to submit my “know your customer information.” If I go into that same bank tomorrow and apply for a credit card, I need to submit my “know your customer information.” Both those departments will run those checks independently, and it costs them money to do those. That’s one of the big pieces that we see as being interesting. So it’s not just financial transactions; there’s a whole, all-encompassing ecosystem that can be built on top of the blockchain, but it’s going to take time.
Working with the Hyperledger Project
ED: Your membership in the Hyperledger Project – what is the focus of the Hyperledger Project? How did it come about in the first place and why did you join?
JC: We joined Hyperledger more recently. It started a little over a year ago. It started when Digital Asset Holdings contributed several of their codes. IBM also has been a really big proponent of it. IBM, as you probably know, is a very open standards-focused and open-source-focused company.
That is the direction they’re trying to go. Selling services are, I think, more attractive to them than just trying to sell closed proprietary software. If you look at the business models of Red Hot Linux and where IBM has started to shift themselves, I think it fits very nicely with what they are doing. And one of the things we very much stress to everyone that we’re working with is that we cannot develop these technologies in a vacuum and then expect it to improve the world. We need to make sure that we’re keeping abreast of what other players in the industry are doing.
So, for us joining the Hyperledger project, it meant that we got to collaborate with our peers, with companies that are complementary to us, and it should be noted that we’re more blockchain agnostic. We feel that some of our clients will ultimately have to interact within an Ethereum blockchain, with an Eris Tendermint blockchain, potentially even in longer terms as acceptance grows with the Bitcoin blockchain itself. And so we see Hyperledger as a very solid technology. We’re very excited about the capabilities that it’s hoping to introduce natively.
Some of the things that we’re doing in pilots and proof of concepts with banks; we’re achieving security and privacy through more of a middleware layer. We hope to bring that down to the blockchain ultimately, and that’s a lot of what the Hyperledger is looking at doing. Whereas the initial Bitcoin blockchain was built for a very public and open purpose, the needs of the businesses that we are serving are slightly different.
ED: So this attempt at setting standards in the community using blockchain, isn’t that an oxymoron in that blockchain should be as standards-agnostic as possible?
JC: Yes, I think that’s the case. But the reality is that if you look at the way software, and any service or any product gets proliferated, it’s very, very rare that you see a complete monopoly. There are various reasons, whether they’re political, financial, and any number of different things why a particular company, country, or institution will go down a particular path. And so the standards that we’re talking about and that we’ve been espousing are how the two different technologies speak with each other.
So if you’ve got a Ripple ledger, or if you’ve got an Ethereum ledger, what is the standard mechanism for communicating between those two blockchains? How does a payment message go from one blockchain to another, or it may be an element of KYC that’s happening in a certain company but those certain pieces of that need to be passed on to the receiving institution; how do those two things talk? And that’s where we think we need to see standards...
ED: So the different blockchain vendors that are coming about right now, including yourself, what is a critical success factor? What will make you successful and another player, like Digital Assets, not successful? Or even R3 and you’ve got all the others – Ripple, etc.
JC: We think the key to success for us is providing a starting ground. Like you said before, is it too incremental? We think incremental is the way to go. We don’t foresee the ability for anybody to switch wholesale to this. I think the critical path to success, and I don't think that any one company – R3, DAH or MonetaGo – necessarily comes at the sacrifice of another. I think that it’s such an ace in technology; there is so much to be developed around post rate settlement, payments, inter-bank communications, credit reporting, KYC, trade finance, and even just the digitisation of contracts.