Banks are dropping out of the R3 blockchain group

Two original participants in the R3 CEV blockchain group have quit and the company has reduced the amount it aims to raise in its first large round of equity funding from US$200 million to US$150 million following tensions over its fundraising plans.

The start-up, which runs a consortium of more than 70 financial institutions, now plans to give bank members a 60 percent equity stake in its blockchain business in exchange for the funding, according to sources.

However Goldman Sachs and Banco Santander, two of the group's original participants, have decided not to renew their membership or invest.

National Australia Bank and Morgan Stanley are also not participating, according to a source, who requested anonymity to discuss plans that were not public.

Goldman Sachs and Santander have investments in other blockchain start-ups, including Digital Asset Holdings.

More than 90 percent of R3's original 42 bank members have expressed an interest in investing, the source said.

Initially, R3 aimed to create a new company providing shared services for the owners, who would get a 90 percent stake. R3 would have run this utility for 10 years and retained a stake in it.

R3's fundraising comes as banks and other large institutions ramp up their investments in blockchain, or distributed ledger technology. It first emerged as the technology underpinning digital currencies such as bitcoin but is now being adapted for use in more traditional financial tasks, such as transaction processing.

Other new companies are also looking to sell blockchain-based technology to banks. Competition among these start-ups has intensified over the past few months as they try to secure investments and deals with large institutions to provide the technology.

R3's funding will be raised in phases over the next nine to 12 months, the source said.

Through its consortium and technology development lab, R3 comes up with ways for the financial industry to use blockchain software.

According to the new terms of the deal, the banks will also acquire a stake in the development lab, which tests new blockchain-based applications.

The group's original 42 members have been given first dibs at investing in the company, followed by members of the company's development lab. If the US$150 million target is not reached, the round will be opened to other strategic investors, the source said.

Since it began operating in September 2015, R3 has rapidly gained the support from the world's largest banks, with members including UBS, JPMorgan and Deutsche Bank. So far they have paid membership fees to participate in the company's activities.

In a statement, R3 said it expected members of the consortium to change over time, as the scale and scope of the project changed.