Thanks to a collaboration between seven European banks and IBM, small and medium-sized enterprises in Europe could be trading in a whole new way by the end of this year. How? It’s called the Digital Trade Chain, and it’s based on a prototype trade finance and supply chain solution that was originated by KBC. The proof of concept has already won the EFMA-Accenture award for “best new product or service in banking” and the Global Finance award for “Innovator in Trade Finance.”
Focusing on small and medium enterprises
Though traditionally underserved, smaller enterprises play a major role in economies around the world. In emerging markets, they create 4 out of 5 new jobs and contribute up to 40 percent of the national income. Even so, obtaining financing for trade, which includes various activities such as lending, issuing letters of credit, factoring and insuring the parties, is a difficult, lengthy and complex process that many businesses are excluded from. In fact, approximately 50 percent of small and medium-sized businesses don’t have access to formal credit.
In January 2017, Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit decided to work together to simplify trade finance for businesses by developing and commercializing the Digital Trade Chain. Now, IBM has been selected to help bring the Digital Trade Chain into production.
Financing through the Digital Trade Chain
Digital Trade Chain will maintain finance and transaction records using distributed ledger technology known as blockchain. In the simplest terms, that means all parties of a trade transaction will be able to access the same source of information. This will help to streamline the order-to-settlement process and reduce the amount of paperwork required to complete transactions. Plus, with greater transparency and a heightened level of trust provided through blockchain, banks will be more likely to give smaller businesses credit.
The Digital Trade Chain network will be built on The Linux Foundation’s Hyperledger Fabric version 1.0, an open source blockchain framework and one of five Hyperledger projects hosted by The Linux Foundation. While the cloud-based portion will run on IBM Cloud and “consume” various cloud services, bringing a banking platform to production on the cloud in six months will be no small feat. As a leader in enterprise blockchain, IBM has the experience and expertise to help put this highly scalable system into production.
To drive the development work, IBM will use Agile methodologies. It was determined that this was the only way to move fast when working with so many new technologies. It isn’t yet common to use Agile in the financial sector, but the banks involved with this project are familiar with the approach. Hopefully, this use case become an example for others to follow.
Understanding blockchain and trade finance
Blockchain is a cutting-edge technology that has already shown promising results in many industries and solutions. This was just a quick overview of one of the exciting implementations that IBM is working to bring into production. Watch this video to learn more about IBM Blockchain and how it can be used to streamline trade finance.
Digital assets have been ubiquitous in the news these days: cryptocurrencies, stablecoins or non-fungible tokens (NFTs), to name a few. Their applications are even more varied, from representing financial instruments to safeguarding authenticity and ownership of digital IP or physical assets. Enterprises that engage in digital assets have significant opportunity to deliver meaningful value to […]
Supply chain chaos did not deter holiday shoppers during Cyber Week, but it did shift shopping patterns and a few long-lived holiday shopping traditions. Black Thursday disappeared… In recent years as Black Friday grew, deep discounts and increased customer demand pushed stores to open earlier and earlier, until eventually they technically opened on Thanksgiving eve, […]
The cryptocurrency and broader digital assets evolution has continued to grow in earnest, showing promising signs of maturity through 2021 as industry-wide regulatory bills have reached the Senate floor in Washington D.C. while prices have appreciated to new all-time highs. Although price appreciation tends to lure attention, price has become an increasingly less significant metric […]