Will old hands lead the mass adoption of new technology?
Blockchain and the Internet of Things have plenty of advocates in the financial world, but could it be the big banks that give them the scope to become all-encompassing?
There is a lot of excitement about new technology – Bitcoin’s blockchain and the Internet of Things in particular – but also a lot of hype. Blockchain advocates say it will transform every aspect of business from legal contracts to audit and compliance. Similar great things are claimed about the Internet of Things – that it will revolutionise manufacturing, transport, healthcare and home life.
The challenge is to sift out from all the different grand visions the practical possibilities – here is one from a paper on Rebooting Financial Services put together by Santander InnoVentures. It has the advantage of focusing on a single aspect of business – trade finance, of bringing together both the blockchain and the Internet of Things and can be explained in a couple of sentences.
Very simply, in the application of trade finance, the Internet of Things does the condition checking when a cargo arrives in a port using sensory technology. It then alerts the issuing bank. This does away with manual checks and documents such as bills of lading.
The smart contract offered under the blockchain model then takes all the pain out of issuing letters of credit by providing access to real-time trade data and making the process automatic once certain criteria are met. The ease of the new system would make trade finance available to a wider set of players, particularly small and medium-sized enterprises, says the report.
“By providing accurate, real-time data on trade flows, trade relationships and performance, the Internet of Things can provide information required to underwrite trade finance. This transparency will make trade finance available to SMEs that would otherwise find it difficult to obtain credit approval,” it comments.
The Rebooting Financial Services paper also has helpful sections on improving valuations of assets used in leasing and a step-by-step guide to using the distributed ledger in post-trade processing.
Interesting indeed that this very down-to-earth thinking is coming from a bank (in collaboration with the consultant Oliver Wyman and financial services investor Anthemis Group) as opposed to a fintech start-up. All of which suggests that while the fintech entrepreneurs may be the first movers, it could still be the banks that take their ideas to the finishing line.
Brian Caplen is the editor of The Banker.
