Tech
OneAZ Credit Union to Explore Use of Blockchain Technology
“We are in an era of instant gratification, where we are not being compared to other financial institutions, but rather to companies like Amazon, Apple, Google and Facebook,” says Sandeep Uthra, Chief Technology Officer at OneAZ.
Arizona’s OneAZ Credit Union will explore implementing blockchain technology developed by San Francisco-based distributed ledger technology company Metallicus.
The partnership between $3.4 billion-asset OneAZ and Metallicus was announced June 11. Metallicus has partnered with several credit unions since unveiling its Metal Blockchain Banking Innovation Program in January, “leveraging its relationships with former bank executives and members of the Federal Reserve,” Metallicus said in an emailed statement to American Banker.
Many credit unions have explored new technologies to meet consumer needs and, more importantly, small businessesFor years, financial institutions have explored the idea of using encrypted blockchains for services such as cross-border payments, accessible account opening, financial management and transaction processing.
In recent years, financial institutions have demonstrated greater confidence in the capabilities of distributed ledgers.
Sandeep Uthra, Executive Vice President and Chief Technology Officer of OneAZ and a member of the Metal Blockchain Advisory Board, will work closely with Metallicus to ensure the systems are technologically sound prior to integration.
Uthra said it is becoming increasingly necessary for credit unions to embrace “digital transformation” in financial services and “bring the overall banking ecosystem to their consumers in a secure manner.”
“We are in an era of instant gratification, where we are not compared to other financial institutions, but rather to companies like Amazon, Apple, Google and Facebook.”
At this time, Uthra could not comment on the licensing fees OneAZ paid to integrate the Metallicus technology, but added that the credit union will likely get the highest return on investment in improving its members’ experience , which should lead to customer loyalty and cross-selling.
In its current form, distributed ledger technology acts as a decentralized system where individual nodes host a shared, immutable database. Each node is accessed with an encrypted key, ensuring that information cannot be manipulated. For credit unions, this can reduce technology and switching costs, improve data security and reduce the need for intermediaries in transactions, said Michael Katz, a fintech consultant at Manatt Financial Services Group.
Metallicus will work with OneAZ to develop a layer one protocol on its layer 0 blockchain, granting the credit union control of custom nodes.
However, as with OneAZ, most credit unions with distributed ledger partnerships are still in the research and preparatory stages of implementation. Rather than directly replacing existing credit union technologies, OneAZ intends to integrate these systems into its existing infrastructure, Uthra added.
Katz said OneAZ and other credit unions’ growing adoption of blockchain-powered technologies will dramatically improve consumer usability.
“There are many opportunities related to data auditability using zero-knowledge proof technology to maintain privacy when verifying data and financial data,” Katz said. “Integrating traditional institutions into the ecosystem accelerates the creation of more user-friendly and UX-friendly products.”
And while some blockchain technologies, such as cryptocurrencies, have faced crackdowns from regulators, Katz said distributed ledger technology in financial institutions can ease concerns about “transparency and immutability.”
Metallicus said it plans to include more than 30 institutions in its Metal blockchain program by the end of the year. Uthra said OneAZ wants to get ahead of this new technological shift.
“Credit unions are making great strides to pivot the banking technology landscape much faster than banks in many cases,” Uthra said. “Simplification and speed in meeting our members’ needs are key.”