There are many applications for Blockchain in trade finance that are clear in the short term. In the commodities space, the exchange of agricultural products can be made more efficient using this new innovative technology for such functions as issuing letters of credit and tracking goods through the delivery and customs process. Blockchain can even be used for executing international or interbank currency transactions more efficiently than was previously possible. This is done through the delegated transparency, autonomous verifiability, and overall security that Blockchain technology makes possible.
Fact #1 – Bank transactions and trade finance are optimal spaces for the testing of Blockchain technologies.
Fact #2 – Major banks are innovating Blockchain-based solutions to improve the efficiency of transactions and trade finance.
So, the only question we are left with is who are the biggest fans & bravest adopters, and what are they cooking?
We decided to make it easier for you by mapping the frontier players in the Financial field
Major banks are concentrating on improving transacting processes and efficiencies through the use of Blockchain. There are many potential applications and substantial value that can be derived from these innovations.
This major bank has been working with several different Blockchain technologies to create networks and facilitate transactions for its customers, both internally and in coordination with other banks. Some of their innovations include JPM Coin, Interbank Information Network, Quorum, and Project Ubin. A JPM Coin is a standardized unit of value that is worth exactly $1 and is intended for customers of the bank to transact internally on a blockchain. It has been utilized for B2B transactions in initial testing. There are plans for this instantaneous and efficient payment method to expand into various currencies, and there is also strong potential for the reduction of counterparty and settlement risks through the use of this technology.
With regards to the Interbank Information Network (IIN), there are over 365 banks participating in this global Blockchain network, which is more efficient than traditional transaction processing and is powered by a technology developed by JPM called Quorum. Quorum is an open-source platform based on the Ethereum Blockchain network, which provides the capacity for conducting transactions. It has special features like zero-knowledge proof technology that allows for transactions to be configured to mask the identity of participants in a transaction selectively along with the value of the transaction itself on an as-needed basis.
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As one of the most international banks of the modern-day with operations in at least 65 countries and territories, HSBC is a major innovator in this space as well. They participate in a consortium of 8 banks known as Voltron in making use of a platform known as Corda, which is provided by a company called R3. This platform enables them to process letters of credit much more efficiently than before, have shorter settlement times, better discrepancy resolution, and sanctions screening. Eventually, it should be able to replace traditional processes that are currently paper-based to increase cost-effectiveness, reduce fraud, and remove reconciliation processes.
Another digital platform that HSBC is utilizing aside from Corda is we.trade. This platform provides the capacity for collaboration between banks with regards to transacting physical goods on account. The dynamics of this system are optimal due to real-time visibility, the various data available being allocated to the appropriate parties, and the complete trail of documents and confirmations which are required for compliance purposes that are produced along the way. This technology presents a significant opportunity to improve the quality of transactions for both customer satisfaction and cash flow purposes.
Bank of America
As a substantial innovator in the Blockchain space, Bank of America currently has over 80 patents related to Blockchain technology. One of these patents was for incorporating Ripple’s platform into their settlement layer to make transactions both faster and cheaper. This was the first instance of BofA incorporating external Blockchain technology into their systems. The incorporation of Ripple allows for settlement to occur in real-time instead of end-of-day, as is the case with more traditional transaction mechanisms like ACH. It also allows for more efficient FX trading and takes away the need for physical accounts at partner institutions.
Aside from Ripple, Bank of America participates in the international Blockchain-based trade finance network known as Marco Polo. Like HSBC’s we.trade platform, Marco Polo is built on Corda by R3. The goal of this network is to simplify the securement of payments in commercial transactions. It provides greater transparency throughout the processing of a transaction and makes previously paper-based processes much more efficient. Ultimately the goal is to utilize this network to create more efficient trade finance processes to solve problems currently occurring in business transactions globally.
Essentially Blockchain is a great technological solution for challenges that have been traditionally presented in banking transactions and trade finance. Whether it is reducing excessive paperwork for customs officials and credit officers or making internal bank and interbank transactions more efficient to exchange funds and securities internationally, Blockchain technology can be adapted to do things better. Blockchain provides not only opportunities for greater security and transparency, but also automation and streamlining of processes due in part to its autonomously secure and verifiable nature.
On December 30, 2019, The Israeli FinTech Association FinTech-Aviv will host a Blockchain in Banking Event themed – Truth or Tale – The Evolution of an Urban Legend Event at Rise Tel Aviv. You are most welcome to join us there for an evening that will uncover exciting pieces of information on the evolution of the Blockchain movement!
Nir Netzer is the Founding Partner of Equitech Financial Consulting and Co-Founder of the FinTech-Aviv community.