In 2017, China Merchants Bank (CMB) faced the challenge of staying competitive in a rapidly evolving financial landscape. The bank’s president, Tian Huiyu, recognized that traditional banking models were becoming obsolete, and fintech innovations like blockchain could provide both opportunities and threats.
Established in 1987, CMB has grown to be one of China’s largest banks. Despite its success, the bank’s legacy IT systems and traditional banking culture were seen as potential obstacles to adapting to new technologies. To address this, Tian established the CMB incubation fund, dedicating 1% of annual profits to innovation projects, including blockchain.
Blockchain Initiative: The blockchain team at CMB, comprising 20 members within the IT department, embarked on developing a blockchain platform using IBM’s Hyperledger Fabric. The primary goal was to improve cross-border payment processes, which traditionally relied on the SWIFT system, known for its delays and high costs.
Implementation: On December 20, 2017, CMB launched its blockchain-based cross-border payment platform. The platform facilitated the first blockchain transaction between Wing Lung Bank in Hong Kong and its branch in Shenzhen. This new system replaced the SWIFT message with a more efficient blockchain transaction, significantly reducing the time and cost involved in cross-border payments.
Outcomes: The initial success of the blockchain platform led to over 51,000 transactions within eight months. The system demonstrated significant improvements, reducing clearing time by 50%, costs by 80%, and recovery work by 90%. This project underscored CMB’s commitment to innovation and positioned the bank as a leader in adopting blockchain technology for financial services.
Challenges and Future Prospects: Despite the early successes, CMB faced decisions about the future of its blockchain projects. The bank needed to consider whether to expand its investment in blockchain amidst competition from other banks and fintech companies like Alibaba and Tencent. Additionally, regulatory compliance and the need for a clear strategic direction were critical factors in determining the project’s sustainability.
Conclusion: CMB’s blockchain initiative illustrates the potential of digital literacy and technological innovation in transforming traditional banking operations. By embracing

blockchain, CMB not only improved its cross-border payment processes but also set a precedent for other financial institutions to follow.
Source: https://hbsp.harvard.edu/

QUESTION ONE [30]

1.1 In the light of the system discussed in the case study, analyse the benefits and challenges CMB faced in adopting blockchain technology for cross-border payments. Discuss how these factors influenced the bank’s strategic decisions.
(20)

1.2 With reference to the case study, discuss what additional measures CMB could have implemented to enhance its adoption of blockchain technology and integration within the financial industry. (10)

QUESTION TWO [20]

2.1 Explain how CMB’s response to the challenges of traditional banking systems reflects its efforts to balance technological innovation with risk management. Provide examples from the case study to support your explanation. (10)

2.2 Describe any five (5) characteristics of effective digital literacy practices as demonstrated by CMB’s actions in implementing blockchain technology. (5)

2.3 Explain how secure web browsing and email safety can be applied to enhance the security of CMB’s blockchain platform. (5)

QUESTION THREE [20]

3.1 A banking institution can be viewed as an information system because it collects, processes, stores, and disseminates financial data. With regards to the above statement, discuss the concept of data privacy in the context of CMB’s blockchain implementation.
(10)

3.2 Data protection is a specialized form of risk management in information systems. With regards to the above statement, explain the processes CMB implemented to secure user data within its blockchain platform.

Answers to Above Case Study Questions on Blockchain Implementation

Expert Answer 1: Blockchain technology in facilitating cross border payments is crucial as it offers significant advantages, but at the same time it also poses significant challenges as well. An analysis of the given scenario indicates that China Merchants Bank has considered the application of blockschain technology in facilitating cross border payments because of increasing pressure from technological disruption and fintech competitors. This has provided with significant advantages and also posed challenges that directly affected the bank’s future strategic direction.

In terms of advantages, it result into improved efficiency and speed in facilitating cross border transaction, significantly helpful in reducing cost of performing transaction, operational reliability and transparency, and higher Innovation and competitive advantage. In terms of challenges, the existing infrastructure at CMB was not highly designed according to blockchain integration and there is wide spread resistance identified within the internal cultural environment.
To know more about the advantages and challenges from considering block chain technology, connect with our digital literacy experts to get detailed answers.

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