BCS Barclays PLC

By Paul Vigna 

R3 CEV, a startup working to build new Wall Street infrastructure using bitcoin technology, said it had filed for a patent this week and named its product Concord for the harmony it aims to build among more than 60 banks.

The patent application is the New York firm's first, shedding some light on what has so far been a widely followed but opaque firm.

R3, launched in September 2015 with a consortium of nine multinational banks, has since grown to more than 60 and includes Barclays PLC, Goldman Sachs Group Inc., and J.P. Morgan Chase & Co.

The goal of the firm has been create standards for financial services based on "blockchain," the open-ledger system used to trade the virtual currency bitcoin. It hopes to sell its wares both to the participant banks and others.

With the filing, the firm is essentially unveiling its plans. What it has built is something that looks in some respects like the cryptocurrency bitcoin, but with significant differences to appeal to banks.

Concord aims to be a universal software platform connecting bank operations both within firms and across markets, aimed at digitizing so-called middle- and back-office functions, like trade clearing and settling, asset registry, and reconciliation, even the recording of cash balances.

If it comes together, the platform could help banks streamline cumbersome operations, lower the costs of maintaining them, and realize billions of dollars in savings.

"I don't think there's ever been a time when there's been so much pressure on banks," said David Rutter, R3's founder and CEO, amid post-crisis regulations, a tough capital environment, and pressure to cost costs. "It's been difficult if not impossible for these big banks to cut costs in a significant way."

A version of Concord is expected to be launched in the next several months, R3 executives told The Wall Street Journal, with a small number of banks using it to test some services early in 2017. It hopes to launch an "alpha" version by mid-year. "We need to make this real to business users in 2017," said Todd McDonald, R3 co-founder and chief operating officer.

Figuring out the best way to use blockchain-based tools in the financial-services industry has become a hot topic. Virtually every major multinational bank is involved in one or multiple working groups. A number of firms, including Digital Asset Holdings, Hyperledger Project, Ripple, Microsoft's Azure, and others are all working on products to take advantage of the new technology.

In many ways, Concord resembles ethereum, the bitcoin offshoot being built as a platform for application hosting. Concord, too, is viewed as a platform that will allow developers to build any variety of applications. But it is tailored expressly for financial institutions, and so has different features and functions.

Perhaps the most important difference between Concord and bitcoin and ethereum is the way transactions are recorded. With bitcoin and ethereum, every transaction is recorded, verified and disclosed immediately in their respective public, distributed ledgers. With Concord, while the transaction is verified via a distributed ledger, it is not publicly disclosed. The details are shared only by the parties involved, or parties to whom they give access.

Maintaining this confidentiality was a key concern of R3's members banks, said Mr. McDonald. R3 also worked with and met with more than 70 global regulators during development.

Concord is the result of a "total reimagining of the back office," Mr. McDonald said. The firm describes Concord as a "shared-services model" that still maintains privacy for banks.

The banks in R3's consortium have not committed to the new platform, and indeed aren't bound to use it, Mr. McDonald said. However, they've invested money and resources in helping build it, and also had input into Concord's specifications.

While Concord does resemble other platforms, R3 felt it offered enough unique features that it justifies a patent. One other difference between Concord and bitcoin: Concord doesn't have a coin.

Write to Paul Vigna at paul.vigna@wsj.com

(END) Dow Jones Newswires

August 24, 2016 09:48 ET (13:48 GMT)

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