Cross-border B2B trade isn’t just a connection between buyer and supplier: It’s about business partners and their connected supply chains, financiers, brokers, logistics players, regulators and other parties — all a part of a single transaction. It’s a crowded process ripe for innovation, so it’s no wonder cross-border trade, B2B payments and supply chain management have emerged as top targets for blockchain disruption.
But this isn’t an industry easy to shift, and blockchain isn’t a technology easy to implement (yet).
According to Karan Bharadwaj, chief technology officer at Singapore’s XinFin, the potential for blockchain to improve trade and finance across borders is too great to ignore. But it must be done strategically, especially when it comes to regulation.
“Trade and finance is a part of the financial world that has a very high degree of complexity of relationships between participants,” Bharadwaj recently told PYMNTS. “This complexity needs a kind of standardization that blockchain brings through distributed ledger syncing up with each other automatically. Securing trade and finance data across the network of its participants is a very important concern for an industry that is spread across different jurisdictions. Where law and reinforcement are inadequate, robust data security practices can mitigate much of the risks involved.”
With so many players involved, however, robust data security can be “problematic” when it comes to securing financing for a trade deal, the executive added.
XinFin aims to use blockchain to achieve the data security required for efficient dealings. Earlier this month, the company announced it would add its XDC01 protocol into its Hybrid blockchain in order to ensure financial transactions were “private but still verifiable,” Bharadwaj said in a statement at the time.
Moving forward, the firm also plans to implement its Hybrid blockchain technology into various enterprise apps to facilitate trade finance and other business processes that could expand from procurement to supply chain management.
Crucial to expansion, however, is collaboration with regulators.
“Despite the success of public blockchains, it is very difficult to carry out transactions or finance projects using cryptocurrencies directly,” Bharadwaj noted. “Fiat conversion and payment gateways that are linked to regulated banking sectors across borders is necessary for the right kind of liquidity flow.”
By working with existing, regulated payment rails, XinFin may find an easier path to market entry. But as Bharadwaj pointed out, financial regulation isn’t the only focus when it comes to cross-border trade and finance: This industry also weighs heavily on data security, even in markets in which data regulations are weak.
Blockchain, the CTO said, can provide the tools necessary to facilitate data sharing in a secure environment while maintaining the integrity of that information.
“Blockchain is a cryptographically secure store of data,” he said. “While different implementations go to different lengths to obscure publicly visible information, the fundamentals of data security in blockchain implementations are built around robust cryptographic techniques.”
“Blockchain is an immutable store of data that is agreed upon by all participants in the network,” he added. “This ensures the integrity of data because the network is said to be in ‘agreement’ and ‘correctness.’”
Ensuring all parties involved not only have access to the same data, but also ensuring that data is up to date and correct is essential in today’s global trading market.
“The performance of an organization today hinges on the effectiveness of flows between and amongst supply chain trading partners,” Supply Chain Insights CEO and Founder Lora Cecere said in a 2015 report. “While companies have made improvements in their supply chains, they still lack the ability to use outside-in data to improve channel sensing and reduce risk.”
From Concept to Adoption
Working with regulators and addressing key pain points of global supply chains are two critical components to getting blockchain-based solutions out of testing phase and into the real world.
But still, more must be done. One key hurdle for FinTech players like XinFin to overcome is to be able to address all of the needs of the many players involved in global trade — which often don’t align.
“With so many different institutions involved at each step of the transaction lifecycle, pushing a uniform technological solution is a challenge,” said Bharadwaj. “In other words, onboarding all participants onto blockchain is a challenge when each participant has their own set of motivations.”
Further, the CTO said, blockchain solutions have to be able to integrate with existing infrastructure and internal corporate systems, while still maintaining the data security and integrity necessary in global trade.
“The only way of penetrating such ecosystems is through the way of a ‘network pressure.’ This is when large players in the ecosystem start to get on board the blockchain and apply pressure on downstream and upstream participants,” he said. “What is needed is a mature blockchain ecosystem that has the capabilities of plugging into different kinds of infrastructure while retaining the ability to control data visibility and network participation.”