Blockchain technology has made significant inroads into commercial banking, with systems entering production in three vital areas: cross-border payments, trade finance and syndicated lending.
That’s a key takeaway from research recently conducted by Celent, which focuses on the viability of present-day use cases and identifies the consortia and technology providers bringing blockchain to commercial banking.
Trade finance is a natural fit for blockchain.
The Golden Triangle
In the report, Grealish argues financial use cases must fulfill three key criteria: value, feasibility and economic viability. Only three current use cases in commercial banking appear to meet all three of these “golden triangle” criteria, she says, but all three have working systems in production.
Blockchain has already simplified cross-border payments for individuals, but commercial enterprises and interbank systems that use “old rails” have strong financial incentives to shift to faster and less-costly blockchain solutions. , and all have cross-border systems in production, according to the report.
It’s a given that the speed of cross-border payments improves on the blockchain, but what will be critical for financial institutions is the ability to overlay the data associated with larger transactions, according to Grealish. “If you get a fast payment but you can’t [process] it, it doesn’t matter,” she says.
Trade finance, which provides the loans and funding that make international trade possible, is a natural fit for blockchain because it’s “all about documents, contracts and trigger events,” Grealish says. Smart contracts can automate the execution of many of these pieces as goods progress through the supply chain and are tracked by .
While the consortium and both have systems in production, Grealish says it will be difficult to create complete end-to-end solutions because “it becomes exponentially complex as you introduce new parts of the value chain” and navigate the associated regulatory challenges.