DC Velocity - Digital 2018

Special Delivery

reduced bank fees (due to less manual activity on the part of the banks), reduced time for loan approval, and reduced risk of fraud.

WHY OTHERS SHOULD JOIN THE BLOCKCHAIN

Blockchain initiatives hold great promise for non-banking participants and other organizations involved in international trade. Let us highlight some of those benefits, what the impact on their existing activities would be, and the possible role they could play in the future.

We’ll start with the insurers of transported goods. Data is key for them; they use it, for example, to determine the risk involved in a transaction and the associated pricing of insurance premiums. As a consequence of the blockchain’s distributed ledger, all participants involved have insight into all validated trade finance data. This would make a wealth of information available to insurers, allowing them to conduct a deeper analysis and make better decisions around the type of insurance product to be offered, and at what premium. In addition, the information would be available in near real time—even while the transaction is still ongoing.

So with blockchain technology, insurers could obtain information much faster and the data would be more accurate, thus helping them to enhance their offerings to clients and reduce their own risk. Furthermore, blockchain technology enables faster processing between and within parties (for example, document checking), which reduces the duration of an insurance policy.

Some of the benefits for insurers are also applicable to credit rating agencies. For example, if blockchain makes data about importers and exporters more accurate as well as more widely available in near real time, then credit rating agencies will be able to create more accurate models, thereby enhancing their ability to operate in the trade finance chain. However, because data is stored on the blockchain in a distributed ledger, the method of retrieving data and making it available to clients without conversion would no longer be a unique selling point for the credit rating agencies. Instead, they will have to focus on their ability to not just retrieve data, but to also enrich or convert it to useful information for their clients. In other words, they’ll need to rethink their commercial models and consider where they can add value with the new data that becomes available through blockchain.

Currently, credit rating agencies measure the creditwor-
thiness of individuals and corporations based on historical
records related to transactions, financial behavior, and
other factors. With blockchain, they could combine propri-
etary data on the financial history of the individual or entity
with the aggregated import/export data now made available
on the blockchain. This would create the opportunity to
draw insights related to the type and concentration of deals,
which customers are seeking what types of deals, what
buyers are looking for from their suppliers, and related
analytics. Right now this data is not always or is not com-
pletely available; with blockchain it would be available to
all intermediaries (on a private, permissioned blockchain if
the parties prefer). In short, combining private credit rating
data with the blockchain data could create a powerful rev-
enue stream for credit rating agencies. This could also take
some of the pressure off of shipping and logistics companies
to provide this data.

GET READY FOR THE FUTURE

In this article we’ve highlighted how importers and exporters, insurers, and credit-rating agencies could benefit from blockchain technology. They are not the only ones, of course. Blockchain would allow any participant in the value chain—not just those mentioned above, but also shipping companies and related logistics service providers, among others—to share a single view of the financing around a shipment.

In fact, many parties that are interested in exploring the benefits of blockchain have begun to experiment with it. All kinds of questions have come up, such as (to name just a few examples): Who should be involved? What will their role be? How are we going to make money? Not all questions have been answered yet; a lot depends on the role existing parties want to play in the future trade finance chain of activities as well as on what incentives they have to participate in blockchain.

There are challenges to be dealt with, too, such as the need to implement paperless trade, issues of data privacy, and how to get all members of a supply chain to participate. Most of the trade finance-related blockchain pilots today are being run by banks, with limited outside participants. The problem with that approach is that banks will only get their own networks to join, limiting the value when other participants are needed for the redesign and adoption of an existing process and product.

All in all, though, huge opportunities and benefits can be achieved if all parties get involved. So for banks, non-banking participants, and other companies that are considering blockchain, the benefits are clear. Luckily, it’s not too late to start thinking about their future and how they can join the blockchain revolution. c