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Fintech Investments and Company Trials Move Blockchain Closer to Financial Industry Takeoff

By Joe Braue

Fueled by increased investment in fintech startups and validated by several key industry trials, blockchain technology appears poised to make major changes to supply chains, commodities trading, customs, and other financial industry functions.

Global financial institutions are in the process of analyzing how blockchain may disrupt their markets, as well as understanding its limitations and regulatory barriers. They are also taking incremental steps to implement blockchain solutions for their organizations.

 

Blockchain Technology Basics

 

Originally designed for the digital currency bitcoin, blockchain is a distributed ledger technology – essentially a database that is consensually shared by participants across a business network. Think of it like this: Instead of individual companies having their own separate databases to track transactions, contracts, credentials, and other business matters, they can set up a blockchain to serve like a distributed spreadsheet that is duplicated thousands of times across a network and continually updated and reconciled.1

 

State of Blockchain in 2018

 

Eighty-four percent of the 600 businesses worldwide recently surveyed by consultancy PwC had some involvement with blockchain technology. Most were in the development phase, with 20 percent doing research, 32 percent doing development, 10 percent in pilot, and 15 percent with live implementations.2

 

PwC cites three mega drivers of blockchain in 2018. First, the concept of “tokenization” (i.e., representing real or virtual assets on a blockchain) is now being considered for raw materials, finished goods, securities, and just about everything a business does. Second is the proliferation of initial coin offerings (ICOs), under which companies sell predefined digital tokens to the public to raise funds. Companies raised almost $13.7 billion from ICOs in the first five months of 2018. And third, the major vendors of finance, human resources, and customer relationship management applications (Microsoft, Oracle, SAP, and Salesforce.com) have all announced or rolled out blockchain platforms.3

 

Blockchain Fintech Investment

 

Investors are cashing in on the blockchain fintech opportunity. Last year, blockchain fintechs poured significant investments into consumer and B2B payment applications. Venture capital investments in U.S.-based blockchain companies in the first half of 2018 exceeded the total for 2017, says consultancy KPMG.4

 

Especially important was the $32 million investment in an enterprise blockchain startup that is moving the Depository Trust and Clearing Corp.’s $11 trillion Trade Information Warehouse to a custom-built blockchain.5 That project is now scheduled to go live in the first half of 2019.6

 

Another major project is we.trade, a blockchain fintech platform created by a consortium of European banks. The group said that in June and July 2018, 10 companies executed “commercially viable open account” trades on its blockchain platform over five days through four banks.7 The consortium planned to bring a commercial product to market in the fourth quarter of 2018, and to expand into Asia in 2019.8

 

Blockchain for Supply Chains

 

ComputerWorld has cited supply chain as the “killer app” for blockchain in 2018. Key is a joint venture between Maersk, the world’s largest container shipping company, and IBM to deploy a blockchain-based electronic shipping system to track international cargo in real time. That system could save the global shipping industry billions of dollars annually, the publication says, by eliminating EDI- and paper-based systems, which can leave containers in receiving yards for weeks.9

 

Maersk and IBM have enlisted 92 participants in the initiative, called TradeLens, including shipping companies that handle about 20 percent of the global supply chain market, Forbes reports. The group’s blockchain platform is live, having captured more than 150 million shipping events by early August 2018, when it was growing at the rate of one million such events per day.10

 

Furthermore, an infusion of startups is developing blockchain solutions for supply chains. One is combining mobile transport management and cloud computing with blockchain for vendor-to-vendor communication, inventory tracking, and logistics analytics. A number of new companies work with customers to build mobile applications for their blockchain-driven supply chains.11 One startup aims to provide secure shipping “smart contracts” for the greater supply chain ecosystem. Another helps retailers to increase supply chain transparency by using blockchain to track the history of goods.12

 

Amid that progress, issues still are being worked out. Early solutions have a high price tag and don’t scale for high-volume transactions, says Christian Lanng, CEO of Tradeshift, an open source trade platform.13

 

Blockchain and Global Trade, Customs

 

Blockchain fintech investment is also driving innovation in global commodities trading and at customs agencies.

 

In January 2018, for example, five companies successfully completed the first full agricultural commodity trade using blockchain – on a platform called Easy Trading Connect (ETC) – when they shipped a cargo of soybeans across the globe. The ETC platform digitizes sales contracts, letters of credit, certificates, and other documents and performs automatic data matching, eliminating task duplication and manual checks. The trial showed that trading partners could radically reduce the time they spend on processing documents. The platform also enables the partners to monitor trade operations in real time, verify the data, and shorten cash cycles.14

 

Another agriculture-trade trial, announced in June, will test a blockchain solution for efficiently and securely transferring electronic certificates that guarantee the safe transport of fruits and vegetables from New Zealand to Europe. In the past, such certificates have been on paper and exchanged via postal mail.15

 

Customs processes and procedures are another area of blockchain innovation. In June, the Korea Customs Service announced a pilot program that will test a blockchain-based customs-clearance platform that could involve as many 50 domestic exporters and 10 importers in Vietnam and Singapore.16

 

How to Prepare for Blockchain

 

Even with those fintech innovations and trials, blockchain still faces big challenges, including regulatory uncertainty, lack of trust among partners, inability to scale, and lack of interoperability, PwC reports.17

 

PwC recommends that companies pursue four blockchain strategies.

 

  • First, in developing the business case for investing in blockchain, take time to properly frame the problem that the technology will solve, understand that it will require new ways of working, and take small steps.
  • Second, figure out the scope of your blockchain ecosystems – which customers should participate, should competitors be included?
  • Third, consider the blockchain design – should it be open or closed and what level of permissions should be necessary?
  • Fourth, understand that while blockchain eliminates the need for a bank or other central authority to authorize a transaction, it also removes the entity that ensures market stability and combats fraud. This is an obvious concern for regulators, so companies will need to monitor changing regulatory approaches as they move forward.18

The
Takeaway:

Fintech investments, startups, and trial projects among new and established players are driving blockchain adoption across financial services and other industries. Experts say global supply chains, commodity trading, customs, and other components critical to global trade will be most affected. They advise companies to research how blockchain could potentially impact, and even transform, their businesses, and to move forward incrementally.

Joe Braue - The Author

The Author

Joe Braue

For more than 20 years Joe Braue has been a writer, editor, and media executive involved in the creation of award-winning technology content, including articles, research, events, and videos.

Sources

1. “What is Blockchain Technology? A Step-by-Step Guide For Beginners,” Blockgeeks; https://blockgeeks.com/guides/what-is-blockchain-technology/
2. Blockchain is here. What’s your next move? PwC; https://www.pwc.com/blockchainsurvey?WT.mc_id=CT3-PL300-DM1-TR1-LS4-ND30-TTA5-CN_US-GX-xLoSBlockchain-ggl-nonbranded&eq=CT3-PL300-DM1-CN_US-GX-xLoSBlockchain-ggl-nonbranded
3. Ibid.
4. The Pulse of Fintech 2018, KPMG; https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/07/h1-2018-pulse-of-fintech.pdf
5. “Goldman Sachs And J.P. Morgan Join $32M Series B In Enterprise Blockchain Startup Axoni,” Forbes; https://www.forbes.com/sites/michaeldelcastillo/2018/08/14/goldman-sachs-and-jp-morgan-join-32m-series-b-in-enterprise-blockchain-startup-axoni/#8e8ed6662766
6. “DTCC Blockchain Platform Scheduled for Early 2019 Launch,” WatersTechnology; https://www.waterstechnology.com/infrastructure-technologies/3845566/dtcc-blockchain-platform-scheduled-for-early-2019-launch
7. “we.trade: European Banks Complete First Live Blockchain Commercial Transactions,” Smartereum; https://smartereum.com/22218/we-trade-european-banks-complete-first-live-blockchain-commercial-transactions/
8. “First four banks go live on we.trade blockchain platform.” Global Trade Review; https://www.gtreview.com/news/fintech/first-four-banks-go-live-on-we-trade-blockchain-platform/
9. “Blockchain will be the killer app for supply chain management in 2018,” ComputerWorld; https://www.computerworld.com/article/3249252/emerging-technology/blockchain-will-be-the-killer-app-for-supply-chain-management-in-2018.html
10. “IBM-Maersk Blockchain Platform Adds 92 Clients As Part Of Global Launch,” Forbes; https://www.forbes.com/sites/michaeldelcastillo/2018/08/09/ibm-maersk-blockchain-platform-adds-92-clients-as-part-of-global-launch-1/#6e0c368c68a4
11. “Supply Chain StartUps That Use Best Blockchain Technology,” Enuke; https://www.enukesoftware.com/blog/supply-chain-startups-that-use-best-blockchain-technology/
12. “From Tracking Food To Last-Mile Delivery, 125+ Startups Disrupting The Supply Chain & Logistics Industry,” CBI Insights; https://www.cbinsights.com/research/digitizing-supply-chain-logistics-market-map/
13. “Tradeshift Exec: Blockchain Isn’t Ready For Global Supply Chain Deployment,” Ethereum World News; https://ethereumworldnews.com/tradeshift-blockchain-global-supply-chain/
14. “First Agricultural Trade Through Blockchain Completed,” Global Trade; http://www.globaltrademag.com/global-trade-daily/first-agricultural-trade-blockchain-completed
15. “Blockchain tested in fruit import,” Fresh Plaza; http://www.freshplaza.com/article/196787/Blockchain-tested-in-fruit-import
16. “Korea Customs Service to Pilot Blockchain-Based Import Customs Platform,” CCN; https://www.ccn.com/korea-customs-service-blockchain-customs-clearance-platform/
17. Blockchain is here. What’s your next move? PwC; https://www.pwc.com/blockchainsurvey?WT.mc_id=CT3-PL300-DM1-TR1-LS4-ND30-TTA5-CN_US-GX-xLoSBlockchain-ggl-nonbranded&eq=CT3-PL300-DM1-CN_US-GX-xLoSBlockchain-ggl-nonbranded
18. Ibid.

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