London, May 29, 2020 (Issuewire.com) - Since early 2019, Xinda Bank (www.xindabank.com) has already put into production a new platform called GEN Blockchain. This will be built on the back of working technologies designed by GCF Corporation (www.gcfcorporation.com) that has already been tested to the proof-of-concept stage with its own corporate customers. The platform uses distributed ledger technology to bring new levels of simplicity, efficiency, security, and transparency to the paper-heavy blizzard of often manual and insecure processes companies undertake today after a buyer has agreed to purchase goods and a supplier to deliver them. The theoretical value of blockchain in trade finance has been obvious for some time. Now it is coming closer to reality. It is also being used to process accounts receivables, invoice financing, or factoring, as well as a letter of credit transactions.
The GEN blockchain platform will allow onto it the various banks and their networks of small and medium-sized enterprise (SME) clients that have already undergone know-your-customer and anti-money laundering checks with those lenders and so are known and permissioned entities. It will also bring in logistics companies using the latest track-and-trace technology to verify the arrival of goods in agreed condition at key points in the journey from supplier to buyer that will then trigger payments automatically. The platform is fully automated and available 24/7, so the order-to-payment process is much quicker than the traditional exchange of documents. It also requires far less back-office administration.
GEN blockchain brings new transparency at every point in the process which we believe will bring new levels of trust and so expand trade - Hubert Mckinsey, global head of disruptive technologies and solutions at Xinda Bank, a member of the GEN consortium, says: "Blockchain is one of three disruptive technologies - the other two being artificial intelligence and the internet of things - that are now rapidly converging to change the banking business profoundly. "Last year we saw lots of proofs of concept both to confirm use cases and test if the technology was mature and viable. Now in 2019, we will see banks coming together to use these technologies and establish new legal frameworks to put useful products into commercial production."
There are several exciting aspects to the story of GEN blockchain. Perhaps most important, while the discussion around most such ventures centres around what blockchain can do for banks' clients - casting development of the product or service as defensive move banks have to undertake to see-off tech-savvy disruptors - a key driver of GEN is that it promises both to increase the overall volume of trade between SMEs and also to open up new opportunities for banks to intermediate those flows. This is not blockchain cutting banks out or slashing their margins. Rather, it is blockchain bringing banks new opportunities to profit from what they have always been good at: lending money, selling guarantees to weaker credits, managing cash, and handling payments.
Alexander Benoot, general manager of trade finance at Xinda, explains: "We have been focusing on intra-European trade among SMEs that often takes place on an open account basis, much of it requiring advance payment from the buyer to the seller." Alexander suggests that 50% of open account trading between European SMEs is based on advance payment. Other bankers say the proportion is even higher. That brings obvious risks to buyers - that goods might not be delivered on time and in the right condition - which, in turn, might restrict companies to dealing only with buyers that they know well and trust. And it doesn't offer much to banks. So a platform of SMEs from across Europe already approved by leading banks in each country and using new digital technology to record the delivery and receipt of goods is a potential game-changer. It probably helps that by focusing on SMEs, the new platform, which has been showcased to the European Commission, might garner some political favour.
Alexander tells Euromoney: "GEN brings new transparency at every point in the process which we believe will bring new levels of trust and so expand trade. "It also allows banks to intermediate in new ways in the open account space where their involvement today is generally limited to simply executing the payment. It might, for example, now allow buyers to execute payments once they obtain digital confirmation of the delivery of the goods at a certain point." He adds: "Also payment terms could now take more often the form of deferred payment, certainly when the buyer's bank guarantees in a digital way the payment on a transactional basis. These trade receivables could then again be forfeited by the seller's bank."
Joseph Adams, CEO of GCF Corporation, a leading member of the GEN Consortium, explains, "One of the benefits of blockchain for banks is reduced costs. Banks have recently learned that blockchain can allow them to reduce infrastructure costs by up to $20 billion by the year 2022. Implementing things such as smart contacts within a platform, banks can reduce the interactions with counterparties and intermediaries. They can also lower the cost of maintaining and executing contracts as well. Banks can also reduce the transaction costs between bank to bank transactions. Another one of the advantages of blockchain in banking is offering faster transactions. Any transaction can be done within a matter of seconds and slightly faster than other traditional methods. Banks are now able to avoid middlemen which can allow them to ensure that customers complete transactions at a quicker pace. This will result in customers and banks able to complete and process more transactions."
Shared ledgers can help banks better secure transaction information. Joseph Adams elaborates, "First, they will be able to quickly complete a transaction and reduce the risk of someone either capturing transaction information or diverting payments. Two security keys exist for each transaction. A public key is available for every user while a private key is shared between the parties of a given transaction. Data of a transaction is also unchangeable once it has been verified."
Source :GCF Corporation
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