Major banks develop small business blockchain solution

BI Intelligence

See Also

Canadian Mint joins gold-trading blockchain network

Blockchain platform race heats up

Blockchain and IoT devices could revolutionize the supply chain

This story was delivered to BI Intelligence “Fintech Briefing” subscribers. To learn more and subscribe, please click here.

In further evidence of firms’ growing focus on blockchain-based solutions that target particular pain points in the financial services industry, seven large European banks have signed a memorandum of understanding regarding a blockchain-based, cross-border trade finance platform for small- and medium-sized businesses (SMBs), according to Finextra.

Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale, and UniCredit intend to work together on the platform, dubbed Digital Trade Chain (DTC), and plan to launch it in seven European markets: Belgium, Luxembourg, France, Germany, Italy, the Netherlands, and the UK.

DTC aims to simplify trade finance for small enterprises. The platform will be based on a blockchain solution originally commissioned by Belgium-based KBC and built by Belgian IT firm Cegeka, which has already been tested to proof of concept (POC) stage. The banks point out that while many larger businesses use letters of credit to speed up and reduce the risks around the trade finance process, this solution is often not appropriate for or not available to smaller businesses. The new platform will function as an alternative to letters of credit for SMBs. It will work by connecting the parties involved — typically, the buyer, buyer’s bank, seller, seller’s bank, and transporters — on a single blockchain platform, accessible both online and via mobile. They claim that using blockchain technology makes it easier to register payments, track shipments, and improve accountability.

Moreover, the banks say, keeping all records attached to a transaction on the shared blockchain will reduce time spent on paperwork and administrative tasks, thus speeding up the order-to-settlement process.

That KBC’s competitors have agreed to collaborate on a solution it originated is promising. That KBC’s rival retail banks have agreed to further develop DTC suggests not only that the POC is promising enough to convince leading financial institutions to invest in it, but also that interbank rivalry may be less of an obstacle to developing user networks than previously thought. For a blockchain solution to be viable, it has to be widely adopted by many players in the sector. Initially it was thought by many that for this to happen, the solution would have to be built from scratch by a large group of FSIs. However, this latest group effort indicates that major firms are not fundamentally opposed to working on a solution initially developed by a rival institution.

Blockchain technology, which is best known for powering Bitcoin and other cryptocurrencies, is gaining steam among finance firms because of its potential to streamline processes and increase efficiency. The technology could cut costs by up to $20 billion annually by 2022, according to Santander.

That’s because blockchain, which operates as a distributed ledger, has the ability to allow multiple parties to transfer and store sensitive information in a space that’s secure, permanent, anonymous, and easily accessible. That could simplify paper-heavy, expensive, or logistically complicated financial systems, like remittances and cross-border transfer, shareholder management and ownership exchange, and securities trading, to name a few. And outside of finance, governments and the music industry are investigating the technology’s potential to simplify record-keeping.

As a result, venture capital firms and financial institutions alike are pouring investment into finding, developing, and testing blockchain use cases. Over 50 major financial institutions are involved with collaborative blockchain startups, have begun researching the technology in-house, or have helped fund startups with products rooted in blockchain.

Jaime Toplin, research associate for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on blockchain technology that explains how blockchain works, why it has the potential to provide a watershed moment for the financial industry, and the different ways it could be put into practice in the coming years.

Here are some key takeaways from the report:

• Spending on capital markets applications of blockchain is expected to grow at a 52% compound annual growth rate (CAGR) through 2019, according to Aite Group, to reach $400 million that year.
• Banks and major financial institutions are working both collaboratively and independently to develop blockchain tech. Over 50 major financial institutions are involved with collaborative blockchain startups, like R3 CEV or Chain. And many are investing in the technology on their own as well.
• Putting blockchain to use for real-world transactions is likely not that far off. If working groups’ tests are successful, firms could be using it to transact real value as early as the end of this year and we could see widespread industry application within the next few years.

In full, the report:

• Examines the funding increases that are pouring into blockchain
• Assesses why blockchain is becoming so popular and what factors are driving up increased research and development
• Explains in full how blockchain technology work and what assets make it valuable and vulnerable
• Identifies pain points in the financial industry and profiles how various firms are using blockchain to solve them
• Demonstrates the challenges to mainstream adoption and their potential solutions

To get your copy of this invaluable guide, choose one of these options:

1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
2. Purchase the report and download it immediately from our research store. >> BUY THE REPORT

The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of blockchain technology.