Last month, 25 major banks, including Goldman Sachs, JP Morgan, Credit Suisse and our own Commonwealth Bank – said they are backing a New York-based start-up called R3CEV that aims to develop a standardised architecture for payments and settlements. The banks are investing several million dollars of seed capital into the start-up.

Bankers are becoming increasingly aware of the potential for blockchain technology to transform the payments system.

At present, most payment systems are still centralised, with interbank transfers cleared through the central bank. When banks and other financial firms transact with each other, the painstaking back-office job of synchronisng their internal ledgers to accurately reflect the financial transfer can take several days, which ties up capital and increases risk of error.

Given the delays and the costs involved in the present system, it's not hard to understand bank's enthusiasm for the idea of setting up a shared, trusted and tamper-proof ledger that all accredited participants can access and inspect, but which no single user controls.

The participants in a blockchain system are collectively responsible for keeping the ledger up to date, which removes the need to reconcile each transaction with a counterparty. Distributed ledgers that allow transactions to be settled and recorded within minutes or seconds could speed up and simplify the complex system of bank payments and settlements.

As well, being able to instantly update financial transfers in multiple locations without having to go through a single centralised authority could help banks slash costs. Analysts at the Spanish bank Santander estimate that having a shared, trusted private ledger could save the banks as much as $US20 billion a year by 2022.

Having a single distributed ledger has the added advantage that it should make it easier for financial institutions to comply with regulatory requirements on knowing their customers and anti-money laundering rules.

But for this distributed ledger system to work, the banks must agree to a set of common rules and standards for keeping the ledger up to date, and these need not be exactly the same as those that govern bitcoin. For instance, participants may agree that transactions will only be recorded if two or more parties endorse them.

One of the aims of R3CEV is to develop these common standards, while allowing banks to collaborate on a standardised architecture for their private ledgers.

But sceptics question whether banks will be able to overcome their long-standing rivalries and share their information and ideas, particularly as many industry players are already working on their own blockchain trials, or backing other start-ups.