The concept of trade finance has reinstated Blockchain as the most innovative piece of global technology. Although supply chain finance is already positioned as a strategic blockchain use case, a dedicated platform for trade finance is something that has long been envisioned by some of the leading banking institutions. Termed as the Digital Trade Chain, this concept aims at simplifying both international and domestic trade transactions via a permissioned ledger. With DTC in place, some of the leading banking organizations are looking to bring back consumer trust by facilitating open account transactions where products are shipped before the payment. DTC eventually allows the trading parties to track progression and transaction besides keeping a keen eye on initiations and settlements.
Digital Trade Chain: A Blockchain Prerogative
Before moving ahead with the discussion, it is important to understand the concept of Digital Trade Chain and how some of the leading international banks perceive this as a path-breaking innovation for amplifying SME business and banking standards pertaining to the European contingent and eventually the world. Topmost European banks including Natixis, HSBC, KBC, Deutsche Bank, UniCredit, Societe Generale, and Rabobank have already signed the DTC consortium that aims at commercialising supply chain platforms by rendering a financial outlook to the same. With blockchain being the underlying technology, DTC aims towards simplifying the financial processes and the aspects of securing, tracking, and eventually managing global trade transactions.
DTC from a Layman’s Point of View
For those who are well-versed with Blockchain technology, Digital Trade Chain won’t come as a surprising addition. Unlike previous innovations, DTC, if and when adopted extensively across the European banking network, allows customers to initiate trading via highly secured platforms. In addition to offering a closed network, DTC makes sure that customers are able to make digital transactions, via online channels. Every financial aspect, starting from pay commitment to settlement is tracked; thereby streamlining the entire financial hierarchy.
Digital Trade Chain: Associated Goals
DTC comes forth with a unified goal of filling up the financial voids which have been hampering cross-border and even domestic trades for a long time. To be precise, the entire concept of DTC currently rests on the shoulders of a dedicated prototype synonymous to supply chain solution and trade finance, as developed by KBC— one of the associated banking organizations. However, in order to improve the overall functionality of the Digital Trade Chain, IBM’s enterprise blockchain concept was taken into account. With high levels of technical prowess on-board, the initial DTC blueprint focuses on creating deployable grounds across the European contingent with the associated banks covering market visibility. Lastly, the presence of DTC also expands the shipping routes and brings additional trading partners into the play, including the likes of credit agencies, freight forwarders, and many more.
Why Only SMEs?
Digital Trade Chain aims at reinventing trading options, precisely for the SMEs. Most medium and small sized businesses fail to access simplified financial trading options, regardless of the demographics. Even the World Bank believes that almost 50 percent of globally established SMEs lack credit channels for filling up the financial voids. With DTC on-board, it becomes easier for SMEs to initiate better trading solutions while harmonizing shipping and payments.
DTC: The Layout
In order to gain technical insight regarding DTC characteristics, it is important to understand the existing blockchain framework on which it is built. The Digital Trade Chain platform runs on HyperLedger Fabric V1.0.0 which is the stepping stone for blockchain-specific financial services. Although DTC runs on the IBM cloud, it is a cohesive platform that’s suited towards managing, tracking, and even securing international transactions. A complete DTC layout brings forth the concept of SMEs and banking, precisely for on-boarding KYC details and running different business processes with ease.
The Perks of DTC Implementation: Things to Expect
Put simply, the DTC platform, as proposed by the seven leading European banks offers a seamless trading platform for the SMEs to rely on. Besides simplifying international and domestic transactions, Digital Trade Chain also comes with a host of additional benefits:
- Better Access to Financing
With DTC platform on-board, European SMEs can have better access to diverse trade transactions while keeping up with transparency and accountability. This, in turn, is expected to open up diverse trading stream and create new banking relationships; thereby fostering trade growth.
- Increased Transparency
As blockchain involves the concept of distributed ledger, even DTC allows SMEs to maintain end-to-end transparency by securing records over the same. Therefore, it becomes easier to procure a consolidated view of the transactions; thereby boosting confidence.
- Optimised Administration
Besides handling trading transactions in an efficient manner, DTC is also capable of optimizing a host of administrative tasks. This involves keeping a keen digitized eye on supply chain processes, order settlements, and transaction tracing. It must be understood that the payment methodologies need not change for DTC to work. Instead, the entire process of administration and tracking is initiated via the basics of Blockchain technology.
- Simplified Trades
DTC aims at connecting different trading parties within a unified network; thereby facilitating the usage of smart contracts and automatic payments, if and when required
- Improved Trading and Banking
Digital Trade Chain is capable of boosting cross-border and domestic trading conditions by simplifying the existing relationships between the associated parties. DTC links all the banks and customers as a part of a cohesive consortium and makes way for a better trading and banking ecosystem.
DTC platform, riding on Blockchain technology is expected to revolutionize the financial market and banking standards but certainly not at once. For it to become a success, the associated parties must look to address the scalability issues. At present, the existing DTC platform is capable of handling only a small part of the European SME population. However, the 7 banks involved in this syndicate must prepare for the potential growth and arrange for a more scalable hierarchy, going into the future. At present, there are more than 20 million SMEs across Europe which also accounts for almost 85 percent of the total jobs. Therefore, a successful implementation of DTC is critical in order to facilitate growth and improve the economical whereabouts.