Blockchain has had a mixed press over its lifetime to date. Its association and development with the Bitcoin cryptocurrency in the early days proved the technology’s worth as a secure distributed ledger system with enormous potential – and yet a decade on, people in the corporate sector would be forgiven for thinking that blockchain’s development has been lacking the impact of its promising start in life.
That’s certainly not the case, argue the people behind the consortiums who are reshaping the future of trade as they see it. The two major groupings – we.trade and Project Voltron – together command the support of several major banks and financial institutions who are currently collaborating in the digital trade arena to achieve standards and efficiencies for corporates across the globe.
we.trade is a European blockchain-based platform currently formed of 12 partners including HSBC. It started life in 2017 as the Digital Trade Chain, designed to facilitate digital trade finance activity for clients across Europe. As of 2018, we.trade has gone live, initially supporting clients in 11 western European countries, while preparing to expand across markets further afield.
HSBC is also one of eight founding members of the Voltron consortium, which has been active in parallel, developing end-to-end digitization for letter of credit transactions across an even wider reach of geographies and clients. At the time of writing, over 50 banks and corporates have been involved in trials and development across the globe, with R3’s Voltron platform already presiding over several live transactions since 2018.
Chain of tools
HSBC in particular, has good reason to trumpet blockchain’s potential. The Bank presided over the first ever real-time trade transaction using the technology in 2018, involving two counterparties between Singapore and Switzerland, with goods being shipped from Argentina to Malaysia.
This was ground-breaking not just because of the time saved from days to hours in processing the transaction digitally for their global commodities trading company client, but also because of the way in which the platform was structured – leaving ample room for innovation and improvements for future activity.
“We’re now in a phase of expanding these decentralised networks,” says Joshua Kroeker, HSBC’s Hong-Kong-based Senior Growth & Innovation Manager who has been at the forefront of blockchain’s most recent advances with the Project Voltron consortium. “If you can build a network between you and your largest competitors, then anyone will work together. The adoption curve and innovation appetite will vary from bank to bank and region to region, but that’s the direction we’re heading,” he adds.
Blockchain has moved on from the cryptocurrency-led novelty that had the tech community in thrall with its potential. Today, that potential is all about the range of commercial applications among firms imaginative enough to customize a system to optimize their own business growth model.
HSBC’s first live transaction is a case in point, reducing as it did the trade documentation process from what would normally be 5-10 days, to 24 hours. Businesses looking to scale-up operations by adopting a more commited cross-border growth strategy can begin to see the economies of scale, efficiencies and watertight security afforded by blockchain. And these benefits are available to even the smallest of enterprises ready for a step-change.
“The way these projects normally develop,” says Joshua, “is that a number of banks get together, they choose a technology provider, provide them all the user requirements and they develop a solution. It’s when banks try to commercialise the solution that you realise what was built isn’t exactly what your clients wanted.
“Project Voltron is different,” he continues, “From our experience working directly with trading corporates, we had a clear idea of what we wanted it to achieve and we developed it only to a stage where we considered it viable for live transactions. We then worked closely with our corporate trading clients, in the first instance, who provided input into the development to make sure the solution worked for them and was fit for purpose. That customer development and validation was crucial.”
With that key transaction now successful, HSBC has been continuing to build and test with a seven other banks and three technologiy partners to complete eight further transactions, including a second and third transation with HSBC’s global trading client that featured increasing complexity and maturity.
The Canada factor
This transaction was, in Joshua’s opinion, very well thought through but importantly, it had a clear vision. But what of its relevance to Canada?
As a Canadian himself, Joshua has a keen sense of the trade climate in-market, and just how much room there is for improvement. “If you’re a Canadian business, the idea of international trade can be overwhelming. Only recently has there been more attraction to international trade outside of the USA and the North American Corridor.”
Bolstered by the relatively new trade agreement between the EU and Canada, burgeoning Chinese links, and the revised Trans-Pacific Partnership (TPP) agreement that opens up opportunity across Asia, more trade is taking place – though the opaque nature of the process remains a sticking point for many. “For a new company wanting to explore these markets, the questions is often ‘how best can I do it?’,” says Joshua.
Go digital to free up trade
While banks are not short of products to mitigate overseas trade risk or provide working capital, by using traditional letters of credit and other tools, the complexity of these solutions is often cited by technology companies as a barrier to overseas trade.
“We’re trying to increase access to the bank products that banks offer risk mitigation and facilitation of trade, but do it in a way that’s easier to understand and consume,” says Joshua. “The best way to do that is to make it digital.”
The proportion of the corporate sector in Canada active in international trade is still relatively small when US and Mexico trade is excluded, but the extent of the potential becomes clear as business moves into a new phase of digitalized trade.
It’s a great opportunity, Joshua argues, for Canadian corporates to apply a “practical, tech-first solution” to allow them to take advantage of those new trade agreements.
Canada can build a better pathway
Once the infrastructure behind a blockchain platform is up and running, any number of applications can be added to it without a significant capital spend. For Canadian companies in the tech sector itself that can demonstrate the appropriate level of agility and understanding of its use, there is a natural opportunity for them to offer user solutions domestically or worldwide.
As of the beginning of 2019, there were an estimated 2301 start-ups in Canada dedicated to blockchain, boasting investment funds of between US$250,000 and US$38 million – evidence if it were needed that the opportunity to make their mark globally is very real.
“The most exciting potential for Canada’s tech sector in the next five years will be to gain access to the world through the global blockchain networks that are beginning to emerge, agrees Joshua. “If we can get this right and the Canadian tech sector adopts it , it will given them direct access to the world.”