Date
10 December 2018
If blockchain-backed trade finance is used widely, banks can readily check and verify information of SME borrowers at much lower costs. Photo: Bloomberg
If blockchain-backed trade finance is used widely, banks can readily check and verify information of SME borrowers at much lower costs. Photo: Bloomberg

Blockchain starts to bear fruit in FinTech applications

The cryptocurrency market has turned relatively quiet following a slide in digital currency prices. But adoption of blockchain — the technology behind cryptocurrency — continues to gather pace.

Bitcoin and blockchain were both birthed by “Satoshi Nakamoto” — a pseudonymous creator — in 2008. Simply speaking, bitcoin is a cryptocurrency using blockchain technology. And the technology is beginning to find its way into real-use cases.

For example, the World Bank has priced the world’s first public bond created and managed using only blockchain. The sole manger of the the A$100 million deal is Commonwealth Bank of Australia.

Dubbed as “Bondi”, which stands for Blockchain Operated New Debt Instrument, the bond has been priced to yield 2.251 percent and will settle on August 28.

Compared with traditional manual bond sales processes, blockchain technology offers cheaper, faster and safer automation.

All transactions take place real time without going through any intermediaries.

All data are recorded in the blockchain database and can’t be altered, which makes trading and holding bonds safer.

In Hong Kong, the Hong Kong Monetary Authority and seven local lenders will launch a trade finance platform using blockchain technology next month.

The HKMA leads the project development while Ping An OneConnect Financial Technology is the technology provider.

Up to 20 banks are expected to participate when the platform is up and running next month.

The new platform will help digitalize trade documents and automate trade finance processes to reduce risks of fraud and identity theft.

The blockchain technology will boost efficiency and lower the financial costs. Also, the time needed for handling a trade finance deal will be cut to one day from around two weeks at the moment. That would considerably enhance business efficiency.

Currently many small and medium companies are struggling to obtain trade and supply chain finance, due to lack of proper transaction records and the small size of each deal.

If the blockchain-backed trade finance is used widely, banks can readily check and verify information of SME borrowers at much lower costs.

That would motivate the lenders to offer the firms more financing, which would create a win-win situation.

As we learn from experience, the scope of harnessing blockchain in the finance industry is set to widen in the future.

This article appeared in the Hong Kong Economic Journal on Aug 20

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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