These days swiss banking giant UBS has unveiled a new blockchain project which is designed to replicate the entire lifecycle of an international trade transaction on Hyperledger’s Fabric blockchain.
The trade finance project is a result of collaboration with IBМ. It is still in its earliest stages, but it’s arguably already more ambitious than many blockchain prototypes that focus on just a single aspect of the process. Designed to “holistically” combine payment transactions, the prototype merges trade finance transactions, foreign exchange payments and more, into one single, elaborate smart contract.
According to UBS’s head of product and market development for transaction banking, Beat Bannwart, the effort also involved the full range of UBS professionals who are subject matter experts in these areas.
“We looked at it from a transaction banking point of view, so we involved people from trade, from supply chain finance. But the aim was actually to combine all these different steps into one single solution, where the entire business flow is covered.”
In large transactions, letters of credit can be used by a purchaser’s bank to mitigate the sense of risk a seller experiences while the product is in transition. But letters of credit can take as long as seven days to process, according to UBS’s numbers, during which time additional risks can accumulate.
To give an idea of how complicated the process is, UBS said a letter of credit can weigh 500 grams and comprise 36 documents.
By programming that process into a smart contract on Hyperledger, Bannwart said he expects to be able to cut the processing time down from seven days to one hour.
“It is not replacing any procurement or negotiations parties, it is for the pure execution and monitoring afterwards, so that we save them time and you actually have fun to use it.” – said Bannwart.
During the build, representatives from UBS’s IT department joined with staff from the IBM Competency Center to work through the process of moving from visualizations to actually building the product.
Reports of UBS’s blockchain work have been percolating online since last year, including news that multiple blockchain “experiments” were underway.
Then, last month the bank emerged as a major player in the space when it was revealed it was part of a five member consortium that was working on a “utility settlement coin” designed to help central banks embrace blockchain functionality.
Going forward, it remains unclear how long it will take to complete the international trade project.