CBA joins global banks in worldwide blockchain test

Peter Terlato 12 August 2016

Blockchain

Trialling the efficiency of digital trade financing systems.

Financial innovation company R3 and a consortium of global banking institutions, including Australia's Commonwealth Bank (CBA), have teamed up to test the efficiency of blockchain technology.

R3 invited CBA and more than 15 other banks to participate, including Barclays, BMO Financial Group, Credit Suisse, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit and Wells Fargo.

The banks successfully completed two prototypes to demonstrate how distributed ledger technology (blockchains) can transform trade financing for modern financial markets.

Blockchains, which are distributed databases that maintain an aggregate list of secure data records, are used to trade and share virtual currencies, such as bitcoin.

Through a trial simulation using R3's Corda distributed ledger platform, the banks designed and employed self-executing transaction agreements (a.k.a smart contracts) to process globally-recognised transactions.

Trade finance is a major source of revenue for banks, but the banks' traditional processes for facilitating international trade have been threatened as buyers and sellers are able to communicate more easily than ever before, accessing a wealth of information and data about each other, improving legal confidence.

Traditional trade finance processes are also largely paper-based, and more exposed to risks, such as fraud.

In June this year, Blockchain and YBUSA co-founder Nicolas Cary said the $13 trillion global finance industry is traditionally still reliant upon decades old services and fee structures.

"Technology makes it possible for instantaneous payments, except that right now it takes days, or even weeks to make basic transactions. All this begs the question: why can’t money be digital too?" he said.

R3 says its distributed and shared ledger tech prototypes were "significantly faster, more reliable and cost-effective", emphasising their value as a viable digital alternative for trade financing.

Estimates released by Boston Consulting Group suggest blockchain technology has the scope to reduce operational and compliance costs of paper-based trade financing by 10% to 15% and provide banks a platform to grow revenues by as much as 15%.

R3 CEO David Rutter says distributed ledger technology is able to provide a permanent, single, record of trade that can be verified by all parties involved in a transaction.

"These trials have proved that the blockchain-inspired technology used on our Corda platform holds the key to transforming trade financing for modern financial markets," he said.

If you're interested in finance, from bartering and trades to Apple Pay, our historical guide on money explores the ways that we save and spend our cash.

Picture: Shutterstock

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