Barclays | Trading Up

Trading up: applying blockchain to trade finance

Innovation in trade finance …„citing developments are taking place in trade finance at the moment† for the first time in a while, there are real signs of innovation in this area of banking. Innovation always emerges from adversity and never ‰rogress before has this area of banking faced such challenge and competition. If you follow current thinkers and industry Innovation in trade finance goes back to the ‰hoenicians in around Š‹ŒŒ participants, predictions are awash about how FinTech bce who founded maritime transport on companies are eating the major banks’ breakfast, lunch, a commercial scale and re established long distance trade dinner and snacks. between …gypt and Žesopotamia. The merchants of ‘enice Increasing Further are another prime e„ample of innovation† they introduced cost of capital operational costs th We are living in a world of sustained low  dollar  factoring in the Š’ century and such practices continue interest rates, bringing into uestion the transaction to be used in the current day. banking model which was conceived to replace balance The mid Š““Œs were a watershed moment for many sheet growth with fee driven growth. There is a lot of industries, given the dawn of the internet and mass discussion about how regulation is muting the trade finance $ telecommunication. ”evertheless, banks and other industry by increasing the cost of capital, generating further long established financial institutions were slow to operational costs for banks and hiking the cost of client Increasing cost incorporate such technologies into their business contact including acuisition and servicing. €ll this is Low USD of client contact models due to cumbersome, legacy IT infrastructure. taking place in a world where fees are either flat or interest rates (acquisition and servicing) declining, and banks are witnessing lower returns and even negative jaws in some cases. Innovation in trade finance goes back to the ‰hoenicians in around Innovation always emerges from adversity bce. Š‹ŒŒ and never before has this area of banking faced such challenge and competition. This lethargy in banking and financial services spawned a vibrant FinTech revolution, with companies such as •olero ƒonseuently, some banks are uestioning the models and …–ƒ— coming up with solutions to client challenges like used to estimate the returns needed to recoup the large multi bank access, •ill of –ading dematerialisation and investments made on e„pensive platform replacements document preparation, to name but a few. and new operating models. ‡ of ˆ

We look poised for another round of innovation, especially with Why this is important for trade finance The challenge of maintaining ƒhinese walls or data • regards to the platforms used to deliver trade finance to clients. privacy among counterparties to trade transactions istributed ledger technology, popularly known as blockchain, The positive properties of blockchain technology look set could be overcome by utilising tokenisation as a form came into the picture in early ‡ŒŠˆ and banks are now to address some of the key challenges facing the trade of cryptography, whereby parties are only allowed to beginning to catch onto and further investigate the trend. finance sector. For e„ample˜ access permissioned information ƒap abilities around transparency and consensus will • •ecause of the distributed nature of blockchain, there is •lockchain is revolutionising the e„change of value in • help mitigate the ever present risk of documentary an indicative promise of resilience and robustness† this a similar way to how the internet revolutionised the fraud and hopefully reduce the cost of transaction could potentially be broadly adopted at a reasonable e„change of information and communication. reconciliation between and within banks development cost There are two aspects of this technology˜ the promise The traceability associated with blockchain could • mart contracts offer the possibility of self e„ecuting of new opportunities and scope for cost savings. • potentially provide assurance and authenticity of contracts triggered by the efficient e„change of digital products in the supply chain data, potentially revolutionising the long serving –etter The technology offers a potential medium to e„change assets of ƒredit. without centralised trusts or intermediaries, and without the The immutability and digital uniueness inherent in • risk of double spending. The tamper proof nature of the blocks this technology also offers the potential to provide a Internet of things I›T which is still in the early stages • eliminates the possibility of fraud. This technology could also secure transfer of value and deliver a solution to the of application to trade finance could be used to move address operational risk through transparency and immutability, trade finance problem of endorsement physical assets while they are simultaneously tracked thus significantly helping banks reduce their operational costs and purchased. when e„ecuting controls. 1500 BCE 16TH CENTURY MID-1990s TODAY The Phoenicians founded The merchants of Venice The dawn of the internet Blockchain maritime transport on a introduced factoring and mass telecommunication (distributed ledger) commercial scale technology £ ™ of ˆ

›ur clients are demanding deep digital integration in a cost •arclays is also a member of the infrastructure protocol effective manner. This is critical if we as banks are to address initiative ‘¡™ƒ…‘’, alongside other financial institutions. our cost of service, especially in our small and medium si¤e The members of this initiative will build and adopt a enterprise Ž… segment. €t the other end of the spectrum, common infrastructure to support a distributed ledger Transparency many large or multinational corporate clients are multi banked among financial institutions. and are probably averse to using multiple standards and interfaces to send and receive information to and from their The ¡™ƒ…‘ initiative manages a private, peer to peer banks. •lockchain technology can offer solutions to these distributed ledger, underpinned by …thereum technology challenges too. and hosted on a virtual private network ‘‰” in Traceability Žicrosoft €¤ure the public cloud platform offering and “•lockchain is a very good solution to •lockchain as a ervice •aa in an accelerated provenance development environment. Digital eliminate the pain in international trade.” uniqueness €fter such a long period of ‘business as usual’ within Gadi Ruschin, Founder, Wave trade finance, it will be interesting to see how distributed ledger technology shapes the banking industry of o what are we doing¥ the future. €t •arclays, through our €ccelerator programme, we have Watch this space… Reduction in been mentoring a number of start up companies in order operational to share our knowledge and e„pertise and also to learn costs from them. In the Trade and Working ƒapital team Elimination specifically, we are partnering with a company called Wave of fraud in order to use their solution for dematerialising the trade finance •ill of –ading. barclays.com£corporatebanking …very attempt has been made to ensure that the information provided is accurate. œowever, neither •arclays •ank ‰–ƒ “•arclays” nor any of its employees makes any representation or warranty e„press or implied in relation to the accuracy, reliability or completeness of any information or assumptions on which this document may be based and cannot be held responsible for any errors. ”o liability is accepted by •arclays or any of its affiliates for any loss whether direct or indirect arising from the use of the information provided. •arclays is a trading name of •arclays •ank ‰–ƒ and its subsidiaries. •arclays •ank ‰–ƒ is authorised by the ‰rudential ¡egulation €uthority and regulated by the Financial ƒonduct €uthority and the ‰rudential ¡egulation €uthority Financial ervices ¡egister ”o. Š‡‡¢Œ‡. ¡egistered in …ngland. ¡egistered number is ŠŒ‡’Š’¢ with registered office at Š ƒhurchill ‰lace, –ondon …Šˆ ‹œ‰. February ‡ŒŠ’. •ŒŠ’Š¢. ˆ of ˆ