What Happens After You Move Trade Operations to Blockchain?

The recent collapse of the finance company Greensill has put the shortfalls of trade finance at the top of the global agenda news. Meanwhile, a counter-trend currently underway is the fundamental model of transaction banking becoming increasingly transparent. To investigate blockchain’s role in both of these trends – including potentially preventing scandals such as Greensill occurring again – R3 and BAFT, the Bankers Association for Finance and Trade, recently held a high-level webinar to discuss what actually happens when an institution moves its trade operations to a blockchain platform.

To get both the technology provider and user perspectives on this question, the panel for the debate was made up of Alisa DiCaprio, Head of Trade and Supply Chain at R3, and Joon Kim, Global Trade Product & Portfolio Group Manager, Treasury Services Product Management Group, at Bank of New York Mellon. BNY Mellon has joined the Marco Polo trade finance consortium running on R3’s Corda. Against this background, the discussion was structured around three key questions. First, why should a bank take the decision to use blockchain? Second, what internal changes result from blockchain participation and implementation? And third, could blockchain technology have helped to prevent recent scandals?

Although many banks are implementing blockchain, some are still yet to take the plunge. R3’s Alisa DiCaprio zeroed in on this relatively small group of banks who are holding back. “Even though a lot of banks are looking at blockchain, I think some of the smaller banks are still sort of unsure where they fit in,” she said. “I think that’s an important group to also address. How does this divergence in interest affect smaller banks that may not have the capacity to invest a few million dollars in a blockchain project, or are more interested in understanding what others are doing?”

Turning to BNY Mellon’s experience with blockchain, Joon Kim gave the attendees a compelling first-hand account of the drivers and realities of moving to blockchain. Characterizing trade finance today as “a very paper-intensive industry where you have to connect a lot of dots”, he went on to sum up the core rationale for adopting blockchain for blockchain: “It’s really about creating a solution, not in terms of refining a legacy application and putting on some more bells and whistles, but really about transforming the business to the next generation so that we can facilitate the trade finance transactions in a more efficient manner.”

On whether blockchain could have prevented a scandal such as Greensill, Joon Kim’s answer was a definitive “yes”. He explained: “The blockchain component would have enabled people to know essentially what they were financing. Was there a shipment of goods? Proof of that shipment taking place? Was it accepted by the buyer? Therefore, it’s validated. So, we can see the flow and we have all of the right documentation and validation within the blockchain. Then people would have known right from the get-go that this was something they did not want to finance – and that it was not what we usually call ‘supply chain financing’.”

In this short blog we’ve only scratched the surface of the session, which we think is required viewing for any bank considering moving trade operations to blockchain. To view the discussion in full, click here.