Japanese lender Bank of Tokyo-Mitsubishi UFJ (BTMU) and IBM have signed a contract to use blockchain technologies for the design, management and execution of contracts among business partners.

Under the contract, the two will leverage the Hyperledger Project's open-source platform to automate business transactions with each other on the IBM Cloud.

The companies have developed a prototype of smart contracts on a blockchain that according to the companies, will help improve the efficiency of service level agreements in multi-party business interactions.

The bank plans to start using the tool to manage contracts within their business in fiscal year 2017.

BTMU also plans to extend the system’s usage to manage agreements with IBM by the end of fiscal year 2017.

BTMU Asia & Oceania deputy CEO and general manager of Singapore branch and corporate banking division for Asia & Oceania Motoi Mitsuishi said: “Blockchain technology has the potential to change not only the financial world, but also other areas of the business world, leading to improved efficiency of the end-to-end business process.

“Today, we are embarking on a journey with IBM to exploit the potential of this new technology. We are very pleased with the outcome of the first blockchain proof of concept working with IBM Research and IBM Global Business Services and we look forward to seeing these blockchain applications come to fruition.”

At the same time, IBM and BTMU will monitor delivery and usage of equipment with a sensor that embeds information into the blockchain. The process would automate invoicing and payment processes between the two companies.

IBM Industry Platforms senior vice president Bridget van Kralingen added: “Blockchain will reinvent complex multi-party and contract-based business models, especially in banking and financial services.

“This expands our expertise in helping clients identify the right projects and build out blockchain solutions to solve day-to-day business problems more effectively. We are delighted to be expanding the scope of our partnership with BTMU with this blockchain initiative."