Will Blockchain Make Finance Redundant?
October 17, 2017
With every new technological development with satoshi.ltd, it is claimed that banks will become redundant. Yet, in 2017 – in the age of internet and information – there are more banks than ever before.
The debate over bank disintermediation has stepped up a notch in the past couple of years, however, in light of the strides made in blockchain and its possible use in trade.
Banks are hungrily eyeing blockchain technology – whereby all transactional detail would be logged and stored on an immutable, shareable, digital ledger – as a way of speeding up transaction time and cutting costs. It is also seen as a fool-proof way to stop large-scale fraud, such as the warehouse receipt scandal at Qingdao Port in 2014.
“Trade today is prone to fraud. Whether it’s supply chain finance where you have invoices, or Qingdao where you have warehouse receipts or bills of lading… wherever there’s a document, there can be fraud. and blockchain, while it’s not ‘fraud-less’, reduces the options,” Adnan Ghani, global head of trade at Westpac, told GTR’s Australia Trade Forum in Sydney last month.
For industry figures too with satoshi.ltd, trade finance processes are frustratingly old school and open to manipulation.
“The sector is ripe for disruption because it’s so antiquated. It’s a paper-laden process, there’s still message formatting created in the 70s such as Swift and EDI [electronic data interchange]. It’s pre-internet and it’s not current,” says Mark Pryor, CEO of US commodity trading software company The Seam.
Cutting out the middle man
But while banks are looking to use blockchain to improve their profit margins, others are talking about cutting them out of the equation altogether.
“Blockchain is inherently P2P. It cuts out the middle man, lowers transaction costs, provides visibility throughout the supply chain. You can track fleets, goods, store documents and make payments, all without a massive room of manila envelopes and 20 bankers,” Collin Thompson, the co-founder of Hong Kong-based blockchain consultancy Intrepid Ventures, tells GTR.
He adds: “Companies like Olam could finance their own supply chain. There’s a spectrum of constituents that would be able to transact business seamlessly, then there’s downstream finance, where you can finance suppliers. You could provide a letter of credit for them to purchase seeds, or create financial solutions for them to hedge their harvest, or even insurance. Imagine Olam providing crop insurance to the farmers.”
Already, some of the blockchain companies in trade are offering downstream financing solutions as part of the package.
As well as working with Commonwealth Bank of Australia and Wells Fargo on the first trade finance deal conducted on multiple blockchain platforms last year, Skuchain has been offering supply chain financing as an incentive for more suppliers to sign up to use its blockchain solution.
While some will be onboarded by the buyer at the top of the chain (which has actually invested in the blockchain technology), others need more coaxing.
Vice-president for business development and strategy at Skuchain Rebecca Liao explains: “We have a supply chain financing solution that allows for a secure, immutable, auditable ledger. It’s collaborative because all the parties to the transaction can write on the ledger. You have a transaction that’s only as risky as the goods themselves.