Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit have signed a Memorandum of Understanding in Brussels to build a blockchain-based trade finance and supply chain platform called Digital Trade Chain (DTC), as reported by IBT.
This project aims to make domestic and cross-border commerce easier for European SMEs by connecting all the parties involved in a trade transactions via the web and mobile devices. This will consequently facilitate the processes of managing, tracking and securing domestic and international transactions. Moreover the DTC would accelerate the order-to-settlement process, increase transparency and decrease paperwork significantly.
This platform will offer an alternative to documentary credit which is not always adequate for SMEs or for companies that prefer open account solutions, wherein goods are shipped and delivered before payment is due. “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,” said Vivek Ramachandran, global head of product for HSBC‘s trade finance business. The projects will therefore focus on providing an efficient solution to decrease this risk.
Regarding the underlying technology, Ramachandran said: “The phrase ‘interoperability of ledgers’ is used quite a lot and that’s hopefully where we will genuinely go to. You might well have a few different consortia working with different ledgers – as long as the ledgers can talk to each other”. IBT reports it is yet to be decided whether DTC blockchain nodes will be hosted on R3’s Corda or Hyperledger fabric.
DTC will initially be developed for seven European markets with each of the consortium’s bank taking care of a particular country: Belgium and Luxembourg (KBC), France (Natixis, Société Générale), Germany (Deutsche Bank, UniCredit), Italy (UniCredit), the Netherlands (Rabobank) and the UK (HSBC).
Ramachandran has been advocating for more collaboration between big banks and distributed ledger platforms for quite some time, especially for trade as he believes it is “the perfect use case” for this type of technology. Indeed distributed ledgers can help achieve optimal levels of “transparency, verifiability, and immutability of agreements and information” which are all desirable in trade.
In October 2016, DTC already received international recognition as it was awarded the Efma Accenture Innovation Award for best new product or service and it is likely to receive more positive attention throughout its development.