Even if bankers may have shown blockchain fatigue, there is at least one use case that keeps them excited: trade finance.
At least, this is the impression left at this week’s blockchain summit in London. There, many bankers enthusiastically talked about the digital trade financing platform they are building and the cost reductions they believe will lead.
Perhaps most notably, Citibank’s chief technology officer, Amit Valma, describes the technology his organization expects to be a participant in every stage of global trade – from manufacturing to transportation to distribution. – In the process, it showed an unusual sound and a specific description.
He told the participants:
“We expect supply chain management costs to be reduced by 70-80% through the use of blockchains.”
In contrast, in other business areas, bankers have recently been working low-end, trying to deliver on the promised blockchain optimization commitments while dealing with the thorny business of integrating with their legacy systems. But a paper-based system like trade finance, a refreshing aspect, is less resistant to squeaky system architecture.
“The blockchain is good for those that resist digitalization,” said Xavier Laurent, head of the blockchain community at French financial credit bank, French financial institution.
The final example might be trade finance.
On the other hand, in some parts of the world, this process may continue to resist digitization. Laurent said that although trade finance is global, some governments have been slow to develop and are trapped in the process of using paper for recording.
“We will have some jurisdictions and all transactions are carried out on the blockchain,” Laurent said. “But in other geographic areas, due to legal and regulatory risks, these places mean you will still use paper.”
Platform and token
However, Varma emphasizes the vibrancy surrounding this use case. Overall, this is a brand new, fully automated trading platform that Citi is building, which he says will link blockchain with artificial intelligence (AI) and the Internet of Things. Combined. Varma said that artificial intelligence will drive the trigger point in the system (that is, the conditions that must be met before payment), adding that an AI-enhanced platform can reach the level of the contract. In addition, IoT sensors can be used to perform verifications that are typically done by humans.
He said: “The shipments monitored using IoT devices allow everyone on the blockchain to know the location of the shipment.”
“We are moving in the real-time direction, at which point the blockchain platform will trigger payments when goods are received.”
However, Varma retains other details. He did not say how close the platform is, and he didn’t say much about testing or putting it into use. When he was asked by CoinDesk in time, he would not even give the name of the project.
Others talked about the possibility of tokenization – an aspect of the blockchain that companies have only recently begun to accept – in the area of trade finance.
Laurent said that using tokens to represent assets on the blockchain can free up liquidity, such as invoices. “Invoices are not very liquid assets, so tokenization can make them more liquid and better distribute them. .”
Taking the tokenization of trade finance as a logical conclusion, Eric Pruitt, CEO of Ethereine Ventures, said that the whole process can be opened, so that banks no longer need to no longer need to lend to invoices.
“From an accounting point of view, an approved invoice is an asset. Token means that anyone, not just a bank, can participate in the purchase of this asset,” Pruitt said.
According to a recent report by the International Chamber of Commerce, trade finance is a big business with a global value of about $9 trillion.
However, bankers have seen room for improvement, which helps explain why they are digitizing through blockchains. For example, Sean Edwards, legal director of Sumitomo Mitsui Banking, believes that there is a $1.5 trillion potential trade finance market in parts of Africa and Asia.
Edwards, president of the International Trade Finance Association (ITFA), said that in order for these places to enter the market, what is needed is an efficient “know your customer” (KYC) system, which he calls “long tail suppliers”, that is, those most People who need finance.
“Trade finance is event-driven, with invoices, purchase orders, etc. from time to time. You will find that the pre-shipment phase is poorly serviced; banks are not good at funding early small suppliers,” he said.
ITFA’s focus has been on clearing certain pain points, including assisting IBM in working with shipping giant Maersk to digitize bills of lading.
“This is a document of ownership,” Edwards said. “So understanding the process, it helps to become a lawyer.”
Edwards has also been working closely with Marco Polo, a trade finance network built by R3 and TradeIX. Tradel’s participants include BNP Paribas, Commerzbank, ING, and Standard Chartered.
“Things like bank drafts are easy to digitize,” Edwards said, adding: “R3 wrote a program in just one afternoon to complete the task.”