Seven of Europe’s biggest banks in the field of trade finance have formed a consortium with IBM to develop blockchain technology to apply to their business transactions. Deutsche Bank, KBC, Natixis, Rabobank, Unicredit, Societe Generale, and HSBC have been working on the technology to enhance and grow international trade for small and medium-sized enterprises; and the project has been hailed as one of the first production and real-world uses of the technology by financial institutions.
The potential for blockchain to revolutionise banking services has been talked about in glowing terms for a couple of years now, but for the most part any activity has been on a purely experimental level. Now the first real uses have been unveiled with a blockchain called Digital Trade Chain.
Blockchains are distributed digital ledgers that provide a tamper-proof audit trail of transaction records. They are a technology developed as part of cryptocurrencies like Ethereum and Bitcoin, but banks have begun to see that they can be used to streamline their transaction processes to make them cheaper, quicker, and more efficient.
The way the technology is used is that when goods are sold to another party and have arrived, the blockchain triggers the actual payment. The banks will still manage the payment, but the blockchain takes care of a large amount of the administration associated with the transaction, making it quicker and easier to audit. The banks hope that in due course the processing of the actual money will also be handled by blockchain when the process is trusted and rolled out on a wide enough basis.
IBM’s technical solution is being built on an open source blockchain framework called Hyperledger Fabric, and the consortium is aiming to go live with the new approach by the end of this year. In the meantime, a lot of testing remains to be done by each of the parties involved in the consortium.
Individual one-off trials have been undertaken with blockchains recently, such as derivatives trading by Barclays, a currency trading platform from Michael Spencer’s NEX group and an experiment by Wells Fargo and the Commonwealth Bank of Australia last year to process and execute a shipment of cotton from the US to China.