Around the clock and digital

Around the Clock and Digital

In Germany, the first trade financing transactions are already underway via blockchain platforms.

In addition to increasing trade barriers, there are also positive impulses. One of them comes from the blockchain. The technology, which has become known through virtual currencies, is also suitable as a basis for platforms that make trading easier for companies.

The consulting firm Bain expects that this could increase the volume of global trade from currently 16 trillion to 17.1 trillion dollars by 2026. By the end of June, 100 trading transactions will already have taken place via the we.trade platform founded by a European banking consortium. By the end of the year, it should be more than a thousand.

HypoVereinsbank, which belongs to the Italian banking group Unicredit, was the first German bank to accompany a transaction via we.trade. The company navabi in Aachen, an online retailer for women’s clothing, ordered goods from a Spanish supplier for its oversize specialist range.

The company was satisfied. The transaction was extremely efficient and the company’s own risk was reduced. The platform automatically triggers processes such as payment or delivery as soon as agreed conditions are met. In the future, companies that previously did not do business abroad due to payment uncertainty could also benefit from this.

“The secure and fast payment processing via the platform opens up new market opportunities and business opportunities for German SMEs with trading partners with whom they do not yet have a direct business relationship,”

says Thomas Dusch, Deputy Head of Unicredit’s Global Transaction Bank.

In the blockchain, databases are distributed to the participants of a computer network and managed locally. This electronic register is extended by each transaction like a chain (blockchain).

This eliminates the need for conventional time-consuming and costly documentation. All participants have the same level of knowledge at all times: from ordering to invoicing.

“The platform offers a very high level of protection against manipulation and thus also enables the secure execution of national and international trade transactions,”

says Dusch.

HypoVereinsbank currently offers access to we.trade and the transactions on it free of charge. Only the fees agreed with the company, e.g. for financing the transaction, are charged. On request, the seller can also conclude a country risk cover or a documentary business (letter of credit) with his bank for additional payment protection.

Upon confirmation of the commercial transaction, the buyer and seller conclude a contract, the Smart Contract. The system then triggers payments immediately or on the agreed due date as soon as the delivery is confirmed, for example by uploading a data record. As always with open trades, however, this only works if the buyer is liquid.

There is also Internet risk. If disruptions occur in the network, the processes can come to a standstill.

Photo by LYCS Architecture on UnsplashCompanies can save Liquidity and Costs

In principle, fast processing speaks for the digital way. We.trade’s round-the-clock availability contributes to this. “Medium-sized companies can also use it to process their trading transactions in the evening or on weekends and beyond international time limits,” says Dusch.

Both business partners must be customers of one of the twelve banks participating in the consortium or of one of the two banks connected to the platform. Since they are registered there, the business partner gains additional trust. If this is not the case, no transaction is possible. The consortium, therefore, wants to win further participants.

At present, cooperation with the Asian platform eTradeConnect is being sought.

Other blockchain solutions for trading transactions are also being developed. Commerzbank and Landesbank Baden-Württemberg (LBBW) have just carried out their first pilot projects on the Marco Polo platform operated with European banks. HSBC, which is also part of the founding consortium of we.trade, has launched the Voltron platform with seven international banks, which makes a global letter of credit trading more efficient.

In the case of a letter of credit, the buyer’s bank guarantees payment for a fee as soon as certain documents are available for delivery. Origin and shipment documents or the endorsement confirming the transfer of ownership are still sent in the paper form today. The blockchain allows transporters and authorities to enter them in the form of a data record. However, the interfaces must be compatible.

The experts at Bain warn against “digital islands” and advise the development of large platforms with many participants.

HSBC was able to reduce the transaction time from the usual five to ten days to 24 hours on the occasion of trade financing for the food company Cargill, which delivered soybeans from Argentina to Malaysia. “The letter of credit, which safeguards the interests of both trading partners, is the fairest international payment instrument and the blockchain solution means that the bank’s associated payment promise can now be used even more efficiently,” says Alexander Mutter, who is responsible for Global Trade at HSBC Germany, among other things.

Companies can save liquidity and costs. “Especially in Germany, where import and export transactions are essential for many companies, the blockchain will increase the demand for trade financing solutions even among SMEs,” Mutter expects.

At present, only around 15 percent of foreign business is secured with letters of credit, not least because of the fees. This could change with the blockchain. So far, four transactions have been carried out live on Voltron.

“Major international customers of the participating banks are the first movers on Voltron, who are also investing in the technology together with us. But we also have a close exchange of experience with German companies: from the Dax group to international medium-sized companies,”

says Mutter.

Around the clock and digital was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.