The banking sector has long been considered one of the primary beneficiaries of blockchain technology. With large banks worldwide already actively investigating distributed ledger applications, or teaming up with development consortiums to advance the technology, it looks to be only a matter of time before more banking systems are replaced by blockchain equivalents.
The decision today of four banks to join IBM’s blockchain trade finance platform has only advanced the pace of the change. The initiative, launched last year in partnership with UBS, could have a significant impact on trade financing models, which the banks hope could reduce administration costs while improving flexibility.
Today, IBM and UBS have attracted new support from major names in the banking sector. CaixaBank, Erste Group, Commerzbank and Bank of Montreal are set to join the fray in the latest boost to the project that will deliver smart-contract-powered digital letters of credit for more efficient trade finance flow.
The project, known as Batavia, was first announced in October 2016. At the time, UBS’s Beat Baanwart said the system would provide a more closely integrated business flow between trade finance partners.
“We looked at it from a transaction banking point of view, so we involved people from trade, from supply chain finance. But the aim was actually to combine all these different steps into one single solution, where the entire business flow is covered.”
The project is scheduled to begin its initial testing phases early in 2018, and the addition of several new banks to the team could help ensure the eventual release is more widely implemented across industry.
Reliant on smart contracts, agreements which automatically trigger on the satisfaction of certain conditions, Batavia could help banks significantly reduce the cost of arranging trade finance, effectively automating the currently paperwork-intensive process.
IBM has already been in discussions with banks like Emirates NDB and Santander, as well as the government in Dubai. At this stage, it remains unclear who the main customers for the platform could be, although with the raft of new banks joining the project, Batavia could be some way closer to identifying its initial users.
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