South Africa’s largest banks have successfully swapped an asset via a blockchain network, set up among themselves.

The banks – Absa, Investec, Nedbank, Rand Merchant Bank/First National Bank and Standard Bank – along with the South African Reserve Bank (Sarb), the Financial Services Board, the Payments Association of South Africa and central securities depository Strate, are part of a working group, which aims to co-create South Africa’s first distributed ledger-based solution for the financial services industry.

“It is good learning platform, which is about sharing knowledge and experience. It’s not about developing things in isolation,” said Tanya Knowles, executive director of fractal solutions at Strate.

The working group successfully set up a blockchain network using Ethereum, an open source or free to use distributed computing platform.

Foundery, a RMB-backed incubation hub, explains that the group opted to use the open source product as it was looking to pilot a number of concepts rather than build a production system. In addition, the cost of using licensed products became prohibitive due to the number of institutions involved in the project and the group also felt that paying for a product still being developed was not ideal.

“As we are in a mode of learning, we will definitely consider other platforms as the entire blockchain industry is nascent and new platforms are emerging,” said Farzam Ehsani, leader of RMB’s Blockchain Initiative, which looks at the technology on behalf of the FirstRand Group.

The Sarb issued and distributed a smart contract via the network to the rest of the working group, said Sophia Dower, a programme manager for strategy enablement within Absa’s Africa technology unit.

Smart contracts form the basis of the solution that the working group is trying to develop. “The working group aims to co-create a blockchain-based ecosystem – based on a crypto currency but linked to legal tender – that will enable banks to form syndicates and grant syndicated loans in a fast and very simple manner,” Dower explained.

She added that the proposed blockchain solution for syndicated loans, which will combine cryptocurrency traded on an electronic exchange with smart contracts, is likely to bring more transparency to the market as well as shorten settlement times and lower transaction costs. At present the largely manual process, which involves extensive due diligence and administration, means that syndicated loan transactions can take weeks to settle.

Now that an asset has been issued across the network, whose recipients were able to draw value from it, the working group is looking to successfully swap two assets of the same value.

At the same time, the working group continues to focus on understanding the platform. “Think of it like the internet, it would be difficult to create a Facebook if the internet was not yet fully functional. We are therefore focused on the platform which we believe will facilitate many use cases in the future,” Ehsani said.

Dower said that the group explores different technologies, it will match use cases for different assets such as equities or bonds to specific solutions.

The working group, set up earlier this year, plans to explore and experiment further with the technologies, before taking commercially viable working solution to market. Such a solution would also require regulatory approval.

It has yet to put a date on the commercial usage of the blockchain-based solution.