Large banks are still laying the groundwork for the use of blockchain, but more activity is expected soon in the trade finance segment, according to Anthony Woolley, chief information officer for the U.K. at Société Générale SA.
Blockchain, a form of distributed ledger technology, was initially developed as an infrastructure for the bitcoin digital currency but has since been adapted for use in other areas. It allows for every participant to maintain its own copy of a given piece of data, with any changes made instantly updated across all copies.
In the financial services industry, envisioned applications include the sharing of encrypted data on anything from personal information to money between financial institutions, companies and individuals. This process is still in development, Woolley said during a July 13 panel discussion at Fintech Week in London, but real-world implementation is drawing closer.
"The reality is, the amount of implementation supported by business cases, with sleeves rolled up, is actually very small. The reason for that is that infrastructure is still being built" he said. "Technology needs to be adapted to individual use cases, and that takes time. But it is happening, and you will start to see it used in areas such as supply chain finance."
He said trade finance is a particularly interesting use case for blockchain, as it is an area of banking where the vast majority of transactions are still done using paper rather than electronic documentation, owing to issues around establishing trust between the parties to a deal, he said.
"People have been trying to do trade finance electronically for the last 20 years, but it's a very complex ecosystem of different parties around the world, with different interests. There just hasn't been the trust to allow it to happen," he said.
A blockchain network in trade finance could be built by banks, he said, but it could also be put together by shipping companies or port authorities. However it happens, though, there must be a "critical mass" of participants in order for it to be valuable, he added.
"You need enough of the ecosystem coming together — whether that's banks, corporates or port authorities — with enough critical mass to create that environment. Once you have that network effect, the technology provides that assurance," Woolley said.
Société Générale is one of a consortium of seven European banks that hired IBM in June to build a blockchain platform for use in trade finance. Deutsche Bank AG, HSBC Holdings Plc, KBC Group NV, Natixis, Rabobank and UniCredit SpA are the others.