StockMarketNews.Today – The launch of the system, designed by China’s Ping An Group, will be one of the first and largest examples of a government-led project aimed at upgrading the $9tn global trade finance industry.
Blockchain is expected to slash the time and paperwork needed to push through routine trade finance and supply-chain finance transactions by making it easier to verify each step of the complicated process and confirm the credentials of the parties involved.
A number of bank-led trade finance platforms that use blockchain are already under development. In May HSBC announced it had executed the world’s first commercially viable trade finance transaction using blockchain. Deutsche Bank and Rabobank have joined forces to launch a similar businesses.
Among government-backed trade finance platforms, the Hong Kong Monetary Authority’s project will be one of the earliest to go live. “Instead of individual banks trying to do this you have the regulator trying to bring the banks together,” said Jessica Tan, Ping An’s deputy chief executive.
The platform will be owned by the banks that have partnered with the Hong Kong regulator. The final number of financial institutions has not been confirmed but 21 banks are expected to join.
OneConnect, Ping An Group’s financial technology company, designed the Hong Kong trade finance platform using technologies it has already deployed in China. One key feature, according to Ms Tan, is that it would allow small companies greater access to trade and supply-chain finance.
Small companies around the world are regularly denied access to banking services due to the increasing costs of due diligence required to sign up new clients. OneConnect’s technologies are able to extract a wide range of company data, at a low cost, to evaluate potential customers. This will allow the trade finance platform to take on more small businesses.
Blockchain is the decentralised ledger technology underlying cryptocurrencies such as bitcoin. Instead of using a central clearing process, blockchain employs thousands of individual computing nodes to verify transactions, making it nearly unhackable.
The technology is expected to shake up trade finance by slashing the amount of documentation and manpower needed to process transactions. It will also reduce the amount of time needed for some transactions from a fortnight down to just one day.
Fraud will also be easier to detect on the new trade finance platform. Companies often request more financing from banks than needed to fund the trade. Once trades are logged in the blockchain, all parties will be able to view the level of financing requested and reduce the ability to acquire excess funds.
Until this year, OneConnect’s business has been focused on China. However in early 2018 it opened an office in Singapore and now employs more than 100 people outside China. The Hong Kong trade finance platform is one of its biggest ventures outside mainland China.