It is the conference season in international banking and so there are many announcements of new initiatives, and in the area of international trade the emphasis is on initiatives to speed up the trade process and eliminate time and information gaps.
The technology being embraced is that behind Bitcoin, and it is variously known as "Blockchain", "Distributed ledger" and "DLT" for short. The supposed value of the technology is that there is only one version of the current status of a transaction, and that it can be updated quickly. This is achieved by the parties to a transaction performing work simultaneously on each status update so as to verify it: the parties set up their own private DLT network, or group of nodes, and if 51% of the computing power on that network verifies the update, it is accepted and all parties can update their records.
This is an alternative to the traditional situation where an event occurs between two parties in the trade chain, and then the others find out (or not) via a variety of reports and advices, some of which can take some time to be forthcoming.
One example of such a network is we.trade, which was originally set up in January 2017 by seven banks (Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and UniCredit), together with IBM, under the title the Digital Trade Chain platform. This is aimed at making domestic and cross-border commerce easier for European companies. Recently, Banco Santander joined the consortium as a founding partner, and these partners intend to establish a Joint Venture company (JV) before end of 2017 to own, manage and distribute the Digital Trade Chain platform.
The stated aim of the we.trade platform is to "seamlessly connect the parties involved in a trade transaction i.e. the buyer, buyer's bank, seller, seller's bank and transporter" and to make the platform "accessible from any connected device."
The value that this will bring is to "simplify trade finance processes for companies by addressing the challenge of managing, tracking and securing domestic and international trade transactions" because companies can then "easily and efficiently trade with more trust."
This sounds like a facilitation of Open Account trading, without the involvement of payment risk mitigation products like Documentary Collection, Letter of Credit or Bank Payment Obligation. There may be a tie-in here to the new SEPA instant payment service which goes live in November 2017, for Euro payments within the SEPA Area (EU plus EEA countries), although the initial service has an amount limit of €15,000; at any rate the settlement of the transactions in we.trade will no doubt be some form of credit transfer.
Since the stress appears to be on intra-European trade, the questions of political risk are not deemed to be important – hence it is conducted on Open Account. A glance at the Non-performing loans of commercial banks in several EU countries and the Balance of Payments data of those same countries might serve to contradict the theory that trading with them involves no political risk.
Possibly we.trade – which is apparently to be established in the Republic of Ireland – may also apply for authorisation as a third-party provider under PSD2, able to be the single place of initiation of payments and aggregation of bank account information, so as to round out its service offering.
At any rate we will see in due course what value can be brought by DLT. In a sense it is the latest craze in the banking industry as there were many pilot projects and initiatives in 2016 to harness it, and now these need to be converted into tangible use cases for customers.
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