Seven large banks from across Europe have joined forces to develop a blockchain-based platform for cross-border trades, aimed at helping small and medium-sized enterprises (SME) in Europe. Deutsche Bank, HSBC, Rabobank, Société Générale, Natixis, UniCredit and KBC are working together to develop and eventually deploy their platform, known as Digital Trade Chain (DTC).
Originally prototyped by Belgium-based KBC, the blockchain-based platform was developed as a proof-of-concept for a supply chain and trade finance solution. HSBC’s Global Head of Product, Vivek Ramachandran, said:
“I believe trade is the perfect use case for distributed ledger technology. You want transparency, verifiability, and immutability of agreements and information. Trade can either be done over a letter of credit, which is complex and expensive and time consuming, or you can trade on open account which has a huge amount of risk, because either the buyer or the seller – one of the counterparties is bearing the risk at any point in time.”
The banks want to use DTC to create a digital distributed ledger to help SMEs maintain secure records. They hope to accelerate order-to-settlement processes, and decrease the amount of administrative paperwork usually associated with trade transactions. While large companies often use documentary credit, also known as letters of credit, to facilitate payments between enterprises, SMEs could see faster transaction processing by using blockchain technology.
The DTC project aims to simplify trade finance processes for SMEs by connecting all parties involved. If a buyer, a buyer’s bank, a seller, a seller’s bank, and any intermediaries are all on the same page, managing, tracking, and securing these trade transactions becomes that much easier. Through DTC, all these parties will be able to interact online or via mobile.
While Ethereum isn’t specifically mentioned as being used to develop DTC, this project is still good for the entire blockchain ecosystem, because it shows the power of smart contract technology when used to automate manual processes, and highlights blockchain’s ability to provide nearly instantaneous settlement times. Connecting all relevant parties via a blockchain-based distributed ledger reduces counterparty risk, and increases transparency and efficiency, all of which is good for global trade.
This stands as yet another example of how financial institutions are beginning to realize the many benefits of blockchain. As more finance giants develop and deploy blockchain solutions, it will only serve to advance the technology. Once these efficiency increases and other improvements become widely apparent, other industries will hopefully follow suit.