Banks’ innovation report
GTR FINTECH FOCUS
Key consortiums R3 ECV
3 ECV (R3) was originally a consortium of 15 financial institutions that was formed in September 2015 to deliver DLT to the finance sector. Today, in what represents the biggest collaborative effort in the industry, it consists of over 50 member banks and financial organisations. The consortium believes that “DLT has the potential to change financial services as profoundly as the internet changed media and entertainment”. It has offices in New York and London. R3 has been developing the Corda platform, which it hopes will become the industry standard. After first showcasing it publicly in April this year, the consortium announced in October that that it would make coding for the platform open-source. “We want other banks and other parties
to innovate with products that sit on top of the platform, but we don’t want everyone to create their own platform... because we’ll end up with lots of islands that can’t talk to each other,” says chief engineer, James Carlyle, addressing the elephant in the room, around the otherwise welcomed developments. “Given that the power of this technology lies in its network effect, the consortium model is the ideal method to get it off the drawing board and into the wholesale financial markets.” In August, R3 announced that it successfully completed two prototypes that demonstrate how DLT can be used in trade finance. Over 15 banks were involved in designing and utilising self-executing transaction agreements, known as smart contracts, on Corda, to process accounts
“We want other banks to innovate products for the platform, we don’t want everyone to create their own platform.” James Carlyle, R3
receivable purchase transactions and LC transactions. R3 estimates the technology has the scope to reduce the operational and compliance costs of paper-based trade financing by 10 to 15% and provide a platform for banks to grow revenues by as much as 15%.
BofAML, HSBC and IDA Singapore
espite being members of R3, HSBC and Bank of America Merrill Lynch (BoAML) have separately teamed up with Infocomm Development Authority of Singapore (IDA) to investigate how blockchain can simplify the LC process. The Asia-based consortium announced in August that it had developed a new prototype
that proved, in theory, that the LC could be brought onto a private distributed ledger. It detailed how the trade deal can be executed automatically through a series of digital smart contracts. Parties involved in the transaction can also visualise data in real time. The consortium says its next steps involve further testing of the concept’s commercial
application with selected partners, including corporates and shippers. “Our challenge is to take this from concept to commercial use; making it quicker and easier for businesses to connect with new suppliers and customers at home and abroad,” says Vivek Ramachandran, global head of product for HSBC’s trade finance business.
Standard Chartered, DBS and IDA
tandard Chartered, DBS Bank and IDA teamed up to develop a proof of concept (PoC) for a blockchain-based invoice trading platform in December last year. It was the first application of blockchain technology to the trade finance space developed by banking institutions. The project uses Ripple’s distributed ledger technology to provide a platform for
tracking invoices, backing loans to suppliers and reducing risk of invoice duplication while retaining client confidentiality. The platform allows banks to convert invoices into digital assets on a distributed ledger. The initiative is envisioned as an open ecosystem where neutral third parties can participate and verify the authenticity of the trade documents being financed.
Standard Chartered’s global head of digitisation and client access for transaction banking, Gautam Jain, tells GTR: “We will be concentrating on extending the views of this initiative to other organisations so it will become a community effort. We look forward to working with more collaborators as we widen the project scope and are very optimistic on quick commercialisation.”
of credit between the buyer, seller and their respective banks, but it also introduced the use of a tracking feature that confirmed the geographical location of goods – allowing all parties to see in real time when the goods were shipped, follow them in transit and eventually see when they arrive at the location, with the need for fewer intermediaries. CBA general manager of cashflow and transaction services, Michael Eidel, tells GTR
that in the next phase of development the partners are looking to work with insurance companies, as the project will work on developing tracking capabilities. For example, the use of temperature or humidity sensors will allow more transparent monitoring of the likely quality and condition of goods on arrival. Furthermore, it will be easier to identify when any deviations from the terms of the contract occur and liable parties.
CBA and Wells Fargo
n October, Commonwealth Bank of Australia (CBA) and Wells Fargo announced they had piloted a trade transaction combining blockchain, smart contracts and IoT. The transaction saw cotton shipped from the US to China through the use of Skuchain’s distributed ledger platform. The trade not only involved an open account transaction that mirrored a letter
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