New small business blockchain application is actually doing big business?

Rage Review : Last week, several European banks announced that they would jointly promote the development of blockchain solutions for transaction finance. At first glance, this news may not seem special, but the use of blockchain to complete transactions between small and medium-sized enterprises in Europe is actually of great significance. On the one hand, small and medium-sized enterprises account for the vast majority of global enterprises, and on the other hand, they can first test the trade process in a small and controllable range before going global. The project is currently applying for regulatory approval and is expected to be released by the end of the year.

Translation: spring_zqy

Last week, the use of blockchain in supply chains took an interesting turn.

Of course, here I will talk about a piece of news, a piece of news that seems extremely ordinary at first glance: several European banks announced that they will join forces to promote the development of blockchain solutions in transaction finance.

However, this is actually not unusual at all.

This project is not aimed at large international transactions, they focus on transactions with small and medium-sized enterprises (SMEs) within Europe.

Why is this an interesting twist? Yes, the vast majority of businesses around the world are small and medium-sized enterprises (which certainly motivates people to develop use cases), but what makes it interesting is what this project says about the evolving nature of trade finance.

There are already many blockchain projects involved in this field, and there are many obvious applications. Generally, cross-border transactions involve a large amount of documents, and this processing process itself will lead to countless errors, which greatly hinders efficiency.

So, we need to ease the burden of commodity trading between the two places, right?

Let's take a look at how this project was done.

Start small

Most projects now involve large international companies, which is understandable because two-thirds of world trade now comes from global companies.

This area has both potential and pain points, but most of it comes from small and medium-sized enterprises rather than large corporate groups. On the one hand, it is because of the large number of small and medium-sized enterprises, but it is mainly due to the general trend of finance.

Today, around 80% of global trade is done through open account transactions rather than traditional letters of credit, which means there are no bank guarantees of payment.

Buyers pay when they are due—usually after the product is delivered.

For some large companies, such transfers will subject many banks to tighter restrictions on lending and guarantees, and will also require increasing working capital and reducing management and financing costs.

For most SMEs, open account transactions are their only option as most trade finance applications from SMEs are rejected.

A win-win situation

Trust is an important factor in bookkeeping transactions. This can become an issue when initiating new business relationships, especially for small and medium-sized businesses that have incomplete or no credit history.

Regardless of how the new platform mechanism works, let's look at what it can do - the new platform can provide real-time status of each step of the transaction, making trust open and transparent. Speeding up the process from order placement to settlement can also increase capital flow.

The purpose of combining the functions of various banks (including payment, insurance agency, etc.) for joint management is to speed up the processing process and thus increase the marginal profit of banks and related customers.

From the perspective of exporting SMEs, this project can help them overcome financing and policy constraints. From the perspective of banks, this will not only retain and support SME customers, but also effectively improve the re-intermediation role of banks in the trade financing process.

Starting within the relatively “safe” confines of the EU allows the project to test the cross-border trade process before officially entering more complex areas.

What to do next

If all goes well, we will soon be able to see how target users experience the project, which is already at the proof of concept stage and was developed by KBC last year.

The subsequent opening to six other European institutions was obviously an important step in expansion, testing it within a manageable group before going global.

The team will apply for regulatory approval in the next few months and expect the application to be finalized by the end of the year.

The advantages of reduced transaction costs and strengthened business relationships can more or less offset the uncertainty brought about by rising interest rates and the changing nature of trade barriers.

The emergence of such projects will undoubtedly help companies better adapt to the ever-changing world of future transactions, adapt to current trends, and prepare for the future.