Japan's largest bank, Bank of Tokyo-Mitsubishi UFJ, announces blockchain as core infrastructure for cheques to digitize the cheque process

Japan’s largest bank, Bank of Tokyo-Mitsubishi UFJ, has announced that it has chosen blockchain technology as the core infrastructure for the development of digitized checks and will use the financial technology (FinTech)-friendly regulatory sandbox of Singapore’s central bank, the Monetary Authority of Singapore (MAS), for testing.

The proof-of-concept (PoC) test was first announced last year and was jointly developed by Mitsubishi Tokyo UFJ Bank and Japan's Hitachi Group. The two companies developed a blockchain-based infrastructure to issue, transfer and collect electronic checks. In this PoC test, Mitsubishi Tokyo UFJ Bank is responsible for issuing and settling checks, while Hitachi Singapore Group collects electronic checks and then withdraws funds.

Hirofumi Aihara, general manager of the Asian systems office at Bank of Tokyo-Mitsubishi UFJ, recently said:

“The project aims to digitize the entire cheque process — from issuing cheques to clearing them.”

The current check process is typically paper-based, with banks first issuing checks to customers and then withdrawing funds from the bank when transactions are required.

Aihara explained:

"From a banking perspective, we need to manually process these paper documents, including fraud checks."

He also stressed the need to simplify the paper-based and time-consuming process, noting that the traditional method could take up to 2 days to clear, so shorter settlement time is one of the main reasons for the push to digitize checks.

Blockchain has “very powerful capabilities”

“Of course, we can still digitize checks without using blockchain, but blockchain has a lot of powerful capabilities.”

He stressed that they consciously chose blockchain technology as the core infrastructure for this PoC prototype.

Blockchain will help eliminate fraud by checking for duplicate checks during transactions. Apparently, he added:

Without any central database to manage check processing, this blockchain system can be easily implemented between banks.

MUFG also said that similar technological approaches could also be applied to "payments and supply chain finance in the non-financial sector" in the future.

Singapore FinTech Sandbox

Singapore's technology development initiatives and its prominence as a center for finance, global trade and travelers also make the country one of the most important hubs in the world. In addition, as one of the gateways to Asia, Singapore has huge payment flows. Last November, the Central Bank of Singapore announced the FinTech Regulatory Sandbox, which FinTech startups and companies can use to experiment with financial processes or services in an environment protected by regulation.

Aihara confirmed:

“We can enjoy and try to leverage the regulatory sandbox capabilities provided by MAS to turn these experiments into products.”

As MUFG’s blockchain-digitized checks expand beyond its Singapore lab, a successful trial will mean the digitized checks will be expanded to other countries in the region.

In 2016, the bank confirmed that it was experimenting with its own digital currency, the "MUFG Coin." Based on blockchain technology, the bank could become the first financial institution in the world to issue its own digital currency, and a report on the digital currency will be released sometime this year.