R3’s CEO, David Rutter likes to cite a McKinsey study that claims banks spend around $3.6 trillion globally supporting their transactions with tens of billions in annual savings there for the taking. But what is the evidence so far that the tech- nology can deliver improved services for corporate clients? Trade finance While many of the earliest applications of blockchain have been in payments (see article on SWIFT/Ripple), trade finance is where real-world corporate applications Maintaining secure records on a digital, solution again on Hyperledger Project may appear first this year. Trade is not fully distributed ledger creates the required blockchain fabric to replicate a letter of automated, it relies on chains of trust and combination of transparency, verifiabil- credit (LC) transaction. transactions involve significant amounts of ity, and immutability of agreements. data and require complex tracking. Supply chain finance In 2016, HSBC and Bank of America At the launch in January, KBC Group In March, Chinese online P2P lender Merrill Lynch piloted a scheme using CEO Luc Gijsens explained: “SMEs Dianrong and FnConn, a subsidiary of Hyperledger Fabric to show that letters are having to run their businesses differ- Foxconn Technology Group which pro- of credit can be executed on the block- ently in an increasingly digital age. Our vides loans and financing solutions to chain. And Corda, the shared ledger successful DTC trial shows that block- SMEs, announced the launch of Chained platform developed by a consortium of chain technology offers a number of Finance, claiming that it was the first more than 70 leading financial institu- opportunities that we want to continue blockchain platform for supply chain tions, brought together by R3, facilitated testing and developing.” finance. The aim of the platform is to invoice financing and letter of credit Deutsche Bank global head of disrup- help supply chain financing companies transactions in trials with more than 15 tive technologies and solutions Roberto potentially triple the number of small banks using its form of ledger technology Mancone said: “For DTC to be success- suppliers they reach. and smart contracts. It’s not clear when ful, it needs to be available and accessi- or if this solution will be rolled out mean- ble by a large number of SMEs – hence The two companies recently completed ingfully and possible changes in the rela- the importance of having a number of a successful pilot and proof of concept of tionship between Hyperledger and R3/ banks involved.” Chained Finance by securing funding Corda – different ways to implement a for small and medium enterprises digital trade chain (DTC) style solution A host of other proof of concept trade (SMEs) in China that were otherwise – complicate the picture. finance transactions have been executed unable to secure needed capital. In a potentially more concrete develop- including: S7 Airlines and Alfa-Bank Chained Finance originated US$6.5 ment, seven European banks are part- and the first Russian blockchain LoC million (RMB45 million) in loans for nering on a new blockchain-based trade transaction; Barclays has completed a these SME supply chain operators. finance platform for European SMEs test on technology developed by Wave to The solution is based on a permissioned and plan to launch in the second half of use a blockchain letter of credit to close a blockchain and Dianrong is an active par- 2017. The Digital Trade Chain (DTC) transaction between Ornua and the Sey- ticipant in Hyperledger. A ‘permissioned initiative was driven initially by Bel- chelles Trading Company; The Com- or closed-loop’ blockchain restricts the gium-based KBC and is based on a per- monwealth Bank of Australia (CBA), number of users who can validate block missioned ledger, with authorised parties Wells Fargo and trading firm Brighann transactions or create smart contracts allowed to submit transactions on the Cotton successfully completed a trade (which are used in supply chain block- platform and manage open account finance transaction experiment in Octo- chain solutions) to pre-registered and trade transactions for both domestic and ber 2016 using blockchain, smart con- authenticated users. This differs from the international commerce, with visibility tracts and the Internet of Things (IoT); fully distributed ledgers of Bitcoin. from initiation to settlement. The banks ICICI, India’s largest private bank, and involved are KBC, Deutsche Bank, Emirates NBD, recently announced suc- The two firms chose the blockchain HSBC, Natixis, Rabobank, Société cessful international transactions for because of the control and transparency it Générale and UniCredit. both trade finance and remittances using allows over the financial history of borrow- blockchain technology; UBS and IBM ers and the security of the data within the SMEs looking to expand globally face the have worked on a project that replicates system. They claim that Chained Finance problem that letters of credit, used by the entire lifecycle of an international offers large multinational manufacturers larger firms, are for them complex, expen- trade transaction on Hyperledger’s Fab- unprecedented transparency and risk con- sive and time consuming and the alterna- ric blockchain; and Bank of America trol capabilities for their supply chain tive, open account trading, exposes one Merrill Lynch, HSBC and the Infocomm finance ecosystems. The system will be counterparty or other to the full transac- Development Authority of Singapore rolled out throughout China first but in tion value risk at any point in time. (IDA) have jointly developed a prototype theory can be implemented globally. www.eurofinance.com TREASURY PERSPECTIVES 2017/2018 // 31