Blockchain? What blockchain?

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Why blockchain is not the only answer for transaction banking.

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There were two themes that dominated this year’s Sibos event, held in October in Sydney.

One was a widespread understanding that collaboration – between banks themselves, and between the banking industry and tech companies – is essential when addressing the challenges that face transaction banking. But that’s nothing new: everyone has known this for years. It’s just a question of scale, momentum and trust.

The other, more contrarian theme was a growing sense that blockchain is not a magic bullet to transform trade finance overnight, and that plenty can still be achieved in innovation without having anything to do with distributed ledger technology.

Arguably the most important event announced at Sibos was the seven-bank collaboration on what used to be known as Project Wilson but is now referred to, rather less memorably in our view, as the Trade Information Network. Here, ANZ, Santander, BNP Paribas, Deutsche Bank, HSBC, Citi and Standard Chartered have committed to build what they call the first inclusive global multi-bank, multi-corporate network in trade finance.

It was conspicuous for the fact that it has absolutely nothing to do with blockchain. In fact, the only time blockchain was mentioned in the launch press conference was to ask why TIN didn’t have anything to do with blockchain.

The answer was that the seven banks wanted to bring together a system that is workable and scalable today in the area of supply chain finance; and, right now, that system isn’t blockchain. Distributed ledger technology might be part of TIN’s future, but it’s not yet workable in a practical sense – and that’s just fine, because technical innovations can be made without it.

There’s no question progress is being made in distributed ledger. More and more demonstration transactions are taking place; the HSBC-ING trade for Cargill in May, for example, was important, but it was still only a trade between two bits of the same company. Scalable though it theoretically is, it’s not yet a model in widespread use.

There is a running gag in the industry that widespread use of distributed ledgers in trade finance is permanently three to five years away. It will come, eventually, and will do useful things, dramatically reducing the time for payments to be made, which not only brings greater efficiency and lower costs but also spurs trade itself.

But banks and intermediaries are doing the right thing by pushing on with other innovative initiatives rather than betting the farm on a system that still faces huge challenges, chief among them bringing common standards and a single infrastructure that the industry can agree upon.

Because if there’s one thing we can agree on, it is that nobody yet agrees.