Innovation

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Will blockchain redefine the future of trade?

Today, blockchain is considered the “next big thing”. What about tomorrow? Will this new technology have an impact on trade? Whatever happens, this trend will almost certainly lead to a new way of working. ING is positioned at the leading edge with the distributed ledger platform “Marco Polo”.

Due to the general confusion about the cryptocurrency "bitcoin", it may be difficult to see the potential of distributed ledger and blockchain technologies, which provide the basis for this and other cryptocurrencies. Blockchain technology enables data and agreements to be encrypted and permanently stored on decentralized IT networks with no possibility of retroactive alteration. The technology does not require any centralized body to authenticate transactions. At any time, authorized individuals can view, verify, transfer and decrypt the recorded information or use it to establish proof of ownership. This does not mean that distributed ledgers are publicly accessible, but they can be organized in protected, limited-access networks. The technology could be understood as a journal that is used for the continuous documentation of business transactions.

It must be taken into account, however, that it is still a very young technology in its beginning stages. Current developments are mostly focused on the areas of trade and logistics. For example, the logistics company AP Moller-Maersk is partnering with IBM to develop an international supply-chain program based on blockchain technology. The program aims to monitor and manage more than ten million shipping containers. The joint venture interconnects freight forwarders, shipping agents, ocean carriers, harbors and customs agencies with the goal of avoiding paper-based, manual controls and thereby reducing costs.

Simplifying trade financing
The Marco Polo initiative, of which ING is a member, is a consortium of IT providers and banks that is developing distributed ledger platforms for trade finance. The platform provides access to trade data, contracts and transactions in order to improve interactions between banks, buyers, suppliers, IT providers, insurance companies and other parties. In order to support decision-making processes, so-called "smart contracts" are created, i.e. algorithms that process trade-relevant data, such as shipping and logistics information, identities, orders, invoices, trade assets, financing activities or credit risks.

Treasurers expect big returns from the distributed ledger and blockchain technology. Some want to set digital parameters via smart contracts, which would facilitate quick business decisions. Others want to reduce costs and increase security. There are many further possibilities. Yet there are not many professionals in the field who have gained sufficient experience or who have a concrete vision of how to implement specific details.

There are still several hurdles to overcome before blockchain technology can be implemented for treasury applications. The technology is still too slow and not sufficiently scalable for payment transactions. Regulatory bodies must be sufficiently convinced of the technology before blockchain applications can be harmonized with existing regulations. There are several practical hurdles that need to be overcome, as well. Currently, there are only a few dozen banks and companies around the world that would be capable of installing and using this technology.

In any case, there is no denying that distributed ledger technology holds the potential to fundamentally change the processes used at banks and treasuries. Due to cost and time-to-market pressure, banks will no longer be capable of independently developing end-to-end solutions as they could in the past. The best possible solution is to cooperate with partners to ensure that product development remains efficient, fast and economical. This applies not only to corporate clients, but also to financial technology companies focused on specific solutions.

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