IBM has signed a contract with Japan’s largest bank to develop smart contracts and automate business transactions using blockchain technology.

Together with Bank of Tokyo-Mitsubishi UFJ (BTMU), IBM will design, manage, and establish contracts that potentially could be deployed among business partners.

The two companies plan to tap blockchain technologies to automate business transactions between both organisations.

The first pilot project, which started in May this year, was built on Linux Foundation’s open source blockchain platform, Hyperledger Project, and deployed for contract management on the IBM cloud.

IBM and BTMU will build on a prototype that sees smart contracts on a blockchain used in multi-party business transactions to enhance accountability and efficiency of service level agreements.

The bank intends to start using the blockchain platform within its business in 2017. Additionally, the two companies plan to manage agreements between themselves with the platform by the end of next year.

Sensors will be used to embed data into the blockchain, allowing the companies to monitor delivery and usage of equipment. It will lead to automated invoicing and payment processes between IBM and BTMU.

BTMU deputy CEO for Asia and Oceania and general manager of Singapore branch and corporate banking division for Asia and 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.

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

“We are delighted to be expanding the scope of our partnership with BTMU with this blockchain initiative.”

IBM is extending its blockchain consulting services and capabilities and working with clients to know what it needs for making blockchain ready for business.

Earlier this year, IBM launched the first global research-led IBM Center for Blockchain Innovation in Singapore.