Major Blockchain Consortia NetworkBI Intelligence

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A number of groups are exploring the use of blockchain or distributed ledger technology (DLT) to boost efficiency in the trade finance sector, including consortium R3, which announced its latest effort in the area this week.

Eleven of the consortium’s bank members, including BBVA, HSBC, US Bank, and Scotiabank, along with technology provider CGI, have created an application built on R3’s DLT platform Corda. The solution aims to increase efficiency in the processing of sight letters of credit, which are payable as soon as the letter and supporting documents are presented to the relevant financial institution. A number of the banks will pilot the application this year, with the aim of opening up access in 2018.

The solution has couple of distinguishing factors that will boost its chances of success:

  • Interoperability. The application offers a standardized interface to users, including carriers and shipping companies, for the input and validation of shipping details, even if they are using a technology platform that isn’t Corda. That likely means the solution will prove more attractive than alternatives, as potential users won’t need to invest in the purchase of a new platform, or train staff to use it. In turn, that will help the application acquire users, which is vital to its commercial success.
  • Focus on a particular pain point. Sight letters of credit are attractive to small- and medium-sized businesses (SMBs) because they facilitate access to funds faster than other trade financing methods. However, the availability of such credit can be limited by the complexity of legacy processes involved and associated high costs. If the new app succeeds in reducing both, the trade financing option could be made available to a broader range of merchants, resulting in higher uptake.

Trade finance will continue to be an area of focus for groups working with blockchain and DLT. The size of the trade finance industry, combined with an ongoing reliance on outdated processes, means it will continue to be an area where financial institutions seek increased efficiency and related cost savings. Those are benefits blockchain and DLT are well positioned to provide. As such, we will likely see more solutions built using the technologies emerge in trade finance, and only those that can successfully differentiate will survive. That differentiation could come in the form of an existing network of potential users, bigger cost savings, or ease of user integration.

BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on blockchain in banking that:

  • Outlines banks’ experiments with blockchain technology. 
  • Details blockchain projects at three major banks — UBS, Credit Suisse, and Banco Santander — based on in-depth interviews. 
  • Discusses the likely trends that will emerge in the technology over the next several years.
  • Highlights the factors that will be critical to the success of banks implementing blockchain-based solutions.

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