IBM and R3 Enhance Enterprise-Class Blockchain for Financial Services

By Charles King, Pund-IT®  October 28, 2020

Blockchain is being promoted for a wide range of business and industrial processes. However, the technology is especially well-suited for financial services use cases where securing highly sensitive data, including digital identities and currencies, tokenized assets, payment information and smart contracts is paramount.

That point is central to the new beta program announced by IBM and R3 which will support R3’s Corda Enterprise blockchain platform on premises with IBM’s LinuxONE systems and in hybrid cloud scenarios via IBM Cloud’s Hyper Protect Services. Let’s consider what the two companies offer separately and aim to achieve together when the beta program begins on November 2nd.

Blockchain, financial services and R3

Though blockchain research projects began appearing three decades ago, the technology initially rose to prominence in 2008 as the public ledger for bitcoin cryptocurrency transactions. Since then, blockchain-based solutions have been proposed or developed for use cases, including supply chain management and shipment tracking, healthcare (including Covid-19 contact tracing), peer-to-peer energy trading and smart contract execution and management.

Not surprisingly, the concept of secure distributed ledgers that is central to blockchain has attracted the attention of financial services organizations, including traditional and online banks. According to two 2016 IBM studies, commercial blockchain development was moving considerably faster in banking and financial services than in other markets.

R3 is successfully taking its Corda Enterprise platform into a range of commercial areas, and has developed a growing list of customers, including companies in capital markets and trade finance. So, it shouldn’t be a surprise that the company is pressing its case among organizations in highly regulated financial markets. If properly developed, these solutions should provide companies access to new and evolving classes of digital assets and commercial transactions while also delivering the advanced privacy and security features they require.

Why IBM and R3?

R3’s interest in large and potentially lucrative financial markets is hardly surprising but why has the company chosen IBM as a strategic partner? More to the point, what value does IBM hope to capture by working with R3? Technological and business factors play sizable roles in both instances.

In the former case, it is difficult to think of an IT vendor with a larger footprint in global finance than IBM. The company’s Z mainframe systems are the solutions of choice for the vast majority of the world’s largest banks, lenders and credit card companies, along with over three quarters of the Global 100. That is completely understandable given IBM Z’s peerless reliability, scalability and performance in transactional and other enterprise workloads.

While the company and its customers can rightfully boast of IBM Z’s proven history of reliable success, IBM has also done a terrific job of keeping these solutions at the forefront of supporting new and emerging business applications. The company’s longtime support of Linux, along with last year’s acquisition of Red Hat are good examples of this, especially since over half of IBM Z customers use solutions, including dedicated LinuxONE platforms to support Linux applications.

Just as important are the Confidential Computing features supported by IBM Z and LinuxONE both in on premises data centers and via IBM Cloud’s Hyper Protect Services. Those capabilities include ‘Keep Your Own Key’ workload isolation encryption capabilities (backed by FIPS 140-2 Level 4 certification), protection from privileged user access (securing systems against tampering by employees or contractors) and encryption of all data at-rest and in-flight without impacting system performance.

Confidential Computing places IBM’s Z and LinuxONE and IBM Cloud at the forefront of secure computing solutions and services. In other words, IBM is just the kind of partner and platform that R3 needs to support Corda Enterprise blockchain implementations.

That leads to the business case for this partnership. R3 clearly stands to gain from working with the financial industry’s leading IT vendor. Doing so is likely to open new doors and opportunities for the company. But IBM is also likely to come out a winner.

The company has already made considerable investments in blockchain development. R3 isn’t the only digital asset vendor the company is working with. However, IBM is also closely attuned to the capital markets and trade finance companies where R3 has found success.

As digital assets play increasingly common roles in traditional financial services, IBM’s work with R3 should lead to new business opportunities for both companies. The partnership also resonates with and is likely to deliver considerable synergies with IBM Cloud for Financial Services which the company is developing with Bank of America and other major financial institutions.

Final analysis

Overall, the strategic partnership between IBM and R3 should provide opportunities for both to find and profitably leverage one another’s best capabilities and characteristics. Just as importantly, it qualifies as yet another example of how the company continues to evolve its IBM Z and LinuxONE platforms and hybrid IBM Cloud capabilities and services to pursue emerging market opportunities and support enterprise customers’ evolving business needs.

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