R3 CEV, the New York-based consortium developing distributed ledger technology, plans to change the way it charges its bank and other members.
Tim Grant, head of R3’s Lab and Research Center, says the review of the pricing model is part of the company’s positioning as it raises a new round of funding.
Since the company was established in 2013, it has charged all financial institutions that serve as its membership a flat $250,000 annual fee. It hasn’t differentiated pricing based on service levels, access to its technology or data, or the size of the member.
“We don’t know yet how the pricing will work out,” Grant said, speaking at a seminar in Hong Kong organized by Cyberport and NexChange’s Fintech O2O events series. (Jehan Chu, managing director of Hong Kong-based Jen Advisors, a venture fund dedicated to blockchain investments, moderated.)
Grant said: “Not everybody will want the $250,000 service level. We will have new service levels – perhaps higher, and also lower. The goal is to expand [the consortium] and have as many companies participate as possible around the world.”
R3’s membership also includes some regulators, as the company has been keen to develop with their input too. Bank of Canada, Hong Kong Monetary Authority, Hong Kong’s Securities and Futures Commssion and the Monetary Authority of Singapore are members.
R3 is a consortium with an open-source development platform, including its Corda blockchain project – which is within the HyperLedger governance community, an arm of the open-source Linex Foundation. However, it is also a for-profit company. “That’s the story we’re telling our investors,” Grant added.
(In December, the company’s founder CEO, David Rutter, confirmed a $150 million fundraising goal for early 2017, according to TechCrunch.)
R3 was established on the premise that blockchain technology would transform financial services in a way the internet hasn’t. To overcome regulatory hurdles and incumbent hostility, it created a group of banks and other financial institutions to develop technology together. The first nine banks joined in 2015; blockchain then attracted a lot of hype, and the consortium expanded to 42 banks a year later.
This early success forced the company to shift from talking about blockchain to developing practical uses for it, so it set up the research lab and hired Grant to run it.
(Some banks have also exited the consortium, including Goldman Sachs and Santander, reportedly over disputes of fundraising and control, as reported by the Wall Street Journal; Goldman is an investor in a rival blockchain project, Digital Asset Holdings.)
Out of that effort emerged Corda, which is a decentralized ledger being developed within the open-source HyperLedger foundation, which also includes projects being developed by Ethereum Alliance, IBM and others. It only went open source in November, after a period of development with input from the member banks.
Emerging use cases
Grant says use-case proposals are now coming in, and hopes to have real projects up and running by the end of this year. “We’re looking at a roadmap to full production, covering trade finance, payments” and so on, he said.
“We are trying to walk that fine line between realism and excitement. The lab’s job is to make it real. 2016 was the year of proof of concept; but PoCs can be devoid of content or real technology. We don’t need to sell a story now; we need things that function.”
Grant didn’t discuss specific projects, although he says there are about 60 being worked on, at different stages of realization. He says that while R3’s focus is on distributed ledger technology (of which blockchain is the original flavor), DLT by itself won’t be the solution banks are looking for.
It is DLT plus many other things, from cloud computing to biometrics to big data to the ‘internet of things’. Some members are now asking R3 to add such crossover technologies to its projects. “I suspect within a year we’ll start to see some of that confluence,” Grant said, particularly around digital identity problems.