Trillion dollar Japanese financial group explores blockchain technology solutions

One of Japan's largest financial holding companies, Mizuho Financial Group (MFG), announced two separate blockchain projects on Tuesday. One is a strategic agreement with leading technology solutions corporation Cognizant, “to develop a blockchain solution for secure record-keeping of documents among Mizuho Financial Group companies around the world.” The other is a collaboration to use Microsoft’s Azure Blockchain as a Service (BaaS) with three local companies, Information Services International-Dentsu (ISID), CurrencyPort, and Microsoft Japan.

Headquartered in Tokyo, the group claims to have 24 million customers or approximately one in five Japanese citizens, and as of March 2015, total assets of over $1.5 trillion. The group employs approximately 55,000 staff in more than 900 offices, both in Japan and overseas. The group consists of more than 150 subsidiaries, but only three major principal companies; Mizuho Bank, Mizuho Trust & Banking, and Mizuho Securities.

The 2016 Bankers Almanac, from global leading data provider Accuity, ranks the retail and corporate banking unit of MFG as the 22nd largest bank in the world, and fourth largest in Japan. Mizuho Bank Ltd., has total assets of US$1.343 trillion. Industrial & Commercial Bank of China tops the list, with $3.32 trillion in assets.

- Toshitsugu Okabe, Deputy President and Executive Officer of Mizuho Financial Group

Headquartered in Teaneck, New Jersey, Cognizant provides information technology, consulting and business process outsourcing services. Originally called DBSS, the company started as a technology unit for Dun & Bradstreet, and was subsequently spun off in 1996.

By 2015, Cognizant employed approximately 221,700 employees in over 100 development and delivery centers worldwide. The company generated US$12.42 billion in revenue last year, with total assets of over US$13 billion.

Cognizant serves a wide range of industries including banking, consumer goods, education, manufacturing, technology, and travel. The company forms partnerships and strategic alliances with leading companies to deliver their solutions across a broad range of sectors. Among their partners are Adobe, Amazon Web Services, Cisco, HP, IBM, Microsoft, and Siemens.

The recent statement reveals that the company has been developing digital frameworks and prototypes to harness blockchain technology, in addition to helping some of the world's leading financial services organizations embrace the technology.

- Francisco D'Souza, Cognizant CEO


Businesses are increasingly finding that blockchain technology has many potential use cases, including payment processing. Cognizant collaborated with VocaLink and the Financial Services Club to release a report last year, “The Changing Face of Payments 2015.” The states that blockchain technologies applied to payment processing, and specifically cryptocurrencies like bitcoin, “have become a new and real driver for change.”

Following the partnership with Mizuho, Cognizant will be responsible for designing and developing a blockchain solution for Mizuho's customers, counterparties, and group companies, “to exchange and sign sensitive documents in a secure and transparent manner, resulting in faster, more efficient processing and multi-party verification,” the company stated.

While this blockchain initiative currently concerns record keeping, it’s the initial step of a strategic program at Mizuho to further the use of blockchain technology, “for building new work processes to make transactions and digital interactions more secure, transparent, efficient and cost-effective, thereby delivering superior experience to customers,” according to the same statement.

- Prasad Chintamaneni, Cognizant President, Banking and Financial Services

The second blockchain project they announced is separate from the first and does not involve Cognizant. It is an experiment to use Microsoft Azure BaaS for Mizuho’s syndicated loan business.

Mizuho has been number one in syndicated loan arrangements in Japan for seven consecutive fiscal years. In the latest Thomson Reuters Bookrunner League Table for Japan, Mizuho was ranked at the very top among Japanese banks in both 2014 and 2015, with a market share of 39.4 percent as measured by proceeds for the nine months ending September 2015. Mizuho reported syndicated loan arrangement amount of ¥9 trillion in 489 deals last year.

Working together on this project with Mizuho is IT solution provider ISID, which was established as a joint venture between Dentsu Inc. and General Electric Company (GE). ISID has been focusing on blockchain technology applications for financial institutions for some time. Joining them is a Tokyo-based startup, CurrencyPort Ltd.

Founded on October 1, 2015, CurrencyPort provides various payment APIs, including multi-currency over-the-counter payments, person-to-person money transfer, remittances, and currency exchange. They also offer Point of Sale (POS) contactless payment solutions for vendors. The company was already working with ISID prior to this blockchain project with Mizuho.

The last company involved is Microsoft Japan, a subsidiary of the American multinational, Microsoft Corporation. To compete with Amazon’s industry-leading AWS platform, Microsoft created a cloud computing platform last year, Azure. The scalable platform allows rapid deployment of software and networks, including Blockchain as a Service (BaaS), which was added in October.

Last month, Azure was used in a distributed ledger experiment by eleven large financial institutions, led by financial services technology company, R3 CEV. The experiment brought together 11 international financial institutions, and interfaced them all with R3 CEV via the Ethereum blockchain. R3 CEV also leads the Distributed Ledger Group (DLG), a consortium partnership with 42 of the world's leading banks, including Mizuho Financial Group.

The idea that the blockchain would make an ideal platform for syndicated loans is not new. Accenture, a Global professional services company, released a report last year titled “Blockchain in the Investment Bank',” suggesting that initial blockchain use cases would be in asset classes where "there is no central trading and/or clearing mechanism," which syndicated loans falls under.

In an interview with Bloomberg in August 2015, Blythe Masters identified three inefficient markets ripe for an overhaul. The Wall Street veteran and Digital Asset Holdings CEO is also developing blockchain-based solutions for syndicated loans.

Masters explained that when investors buy or sell syndicated loans, there are multitudes of "opaque and clunky" back-office processes, which can take as long as 20 days to settle. Blockchain technology could be reduce this to as little as ten minutes, which would free up capital set aside to mitigate the risk of unfulfilled trades.

This same concept is being explored for equity securities trading, which settles in three days in the US. Nasdaq has been exploring this concept and has already made progress by issuing private securities over a blockchain using their proprietary platform, Linq.

Although these two blockchain projects are still in their infancy, Mizuho has indicated interest in implementing them on a grander scale once they are determined successful.