According to Reuters, Commerzbank AG, Erste Group Bank AG, Bank of Montreal and CaixaBank SA have agreed to join an initiative of UBS Group AG and IBM Corp, aimed at developing blockchain-powered technology to support trade finance operations.
According to representatives, the Batavia platform, as the blockchain-based system is called, will help institutions and their customers automate the trading process, which is currently handled manually.
In the trade finance sector, the primary function of banks is to guarantee financing and other solutions to importers and exporters in a bit to support transactions.
Batavia will help the banks monitor trades from the moment the goods leave the ports till they arrive at their destination.
Blockchain is an innovative technology representing a distributed ledger that is not governed, monitored or controlled by a central authority. It is most well-known as the technology behind Bitcoin – the most popular cryptocurrency in the world today. Over the past few years, banks and financial institutions have invested millions in integrating blockchain technology to support some of their sophisticated operations.
Banks, funds, and other financial institutions are also working together and have created consortia to support the research and development process for blockchain adoption.
Presently, each participant in a financial transaction keeps its own records, which can result in delays and errors. Blockchain technology can simplify financial and accounting activities and add transparency thanks to its shared ledger. It can contribute a lot to trade and financial transactions, as more parties are involved in these processes, such as banks, buyers and sellers, inspectors, etc.
Marie Wieck, a general manager at IBM Blockchain, shared that a pilot test is planned for Q1 2018 and also stated:
“Trade finance is a perfect use case because there are so many participants in a trade ecosystem especially when you talk of global trade. Digitizing and creating a level of trust is a perfect accelerator (for business).”
Batavia will utilize pre-coded automated contracts, known as smart contracts, which will govern payments at different steps of the process in-line with the preset agreement. This removes the need for multiple entries and reduces the number of resources required to handle the trade process.
Even though blockchain technology is still in its nascent stages of development, it presents immense potential and is actively being looked into by financial institutions around the world.
IBM, one of the key players in blockchain technology integration, also collaborates with Wal-Mart Stores, Nestle SA, Unilever Plc, and other major food and retail companies as part of another project that tracks and monitors the food supply chain.
Earlier this week, R3, another prominent blockchain developer, announced the launch of a new version of its Corda blockchain platform, which also promises to change the way financial institutions operate.