TOKYO -- Bank of Tokyo-Mitsubishi UFJ and six other international banking groups will launch next year a faster and lower-cost cross-border wiring service that uses blockchain, the core innovation behind virtual currency.

Banks have poured large sums into building high-security systems for fund transfers. But costs for maintaining and updating them have reached the point where the Mitsubishi UFJ Financial Group unit and others have begun turning to blockchain.

Banks can use the technology to develop a remittance system without the need for massive servers, keeping costs down. Advanced encryption technology would make data extremely difficult to falsify. The new platform is also seen further facilitating the exchange of data between banks.

U.S. startup Ripple will provide blockchain technology. Joining BTMU are Bank of America Merrill Lynch, Standard Chartered Bank of the U.K., Royal Bank of Scotland, Spain's Banco Santander, Canadian Imperial Bank of Commerce and Australia's Westpac Banking. About 90 banks in all could participate in the new service, according to Ripple.

BTMU successfully wired money internally to New York using the technology in trials held late last year. Now the Japanese lender will further develop the system with other international financial groups.

It will initially offer the service to individuals in early 2018, then slowly expand to corporate clients. BTMU is the first Japanese megabank to offer a concrete timetable for a rollout.

The process of wiring money will not change much for customers once blockchain is adopted. Clients can request fund transfers online or at a bank branch, with the money remitted through the settlement network.

International wiring of money now goes through the Society for Worldwide Interbank Financial Telecommunication, with data exchanged through the SWIFT network and funds channeled through multiple banks.

The new system sends the money directly to the destination without the use of intermediary banks. That opens the door to immediate settlements, and receipt of funds is easier to confirm. Accounts can be verified before funds are transmitted, a measure said to prevent transactions by suspect organizations.

Savings from eliminating now-complex procedures are expected to be passed on to clients. It currently costs between 3,000 yen and 5,500 yen (around $27 to $50) to transfer money internationally at BTMU. The process can take days, and the recipient bank sometimes charges handling fees.

Banks would lose the revenue stream from the hefty service charges but enjoy huge savings from reduced system development and spending on cybersecurity. The big banks also face competition from startups offering low-cost wiring services. BTMU has determined that it needs to take the initiative in building a next-generation settlement network.

Blockchain technology could also be used to record contracts, among other applications. The seven banks are also mulling taking that innovation beyond wiring money. This could pave the way for integrating sales agreements with payment settlements at banking institutions.

(Nikkei)