- Investment Areas
2017 was the year IBM made serious foray into the trade finance space, bringing blockchain technology and cognitive computing to an industry that has traditional been dominated by paper-based, manual processes.
But what now? While the past year has seen successful proving of the technology itself, 2018 will be the first serious test of blockchain’s viability for the real world.
GTR caught up with Keith Bear, IBM’s vice-president of financial markets, to discuss the challenges ahead and a possible future relationship with R3.
GTR: What have been the most significant developments for IBM in the trade finance space in 2017?
Bear: Two main areas in trade finance generally. Obviously blockchain is a major one.
But outside of the blockchain world – just to give the full picture – we made a big effort in terms of how cognitive computing can help trade finance, and issued a joint release with HSBC about the work we’re doing with them and what’s called cognitive capture. This technology is able to go far beyond what OCR (optical character recognition) can do for reading documents by really understanding the context of text that’s written in documents, using Watson technology, and as a result, it’s able to accelerate a lot of trade finance processes.
It has a big impact on what was previously a very manual process and one that’s prone to errors. Technology is now at a level where it’s making fewer errors than humans. We have been getting a lot of interest from some of the bigger trade banks that are interested to understand how cognitive technology can really help address the unstructured information context of trade finance.
And on blockchain: obviously there have been many initiatives. One of the main highlights of the year, from our point of view, is we.trade as it’s now called. We’ve now added a ninth bank, Nordea, so that’s gratifying in terms of the strength of the proposition. It’s a great example of a blockchain application that is not only providing a better service for SMEs, but also brings a new revenue stream to the banks because they will be able to offer more credit through the trust and transparency, and more customers want to come and join the bank because they provide the gateway into we.trade.
GTR: How will 2018’s blockchain announcements be different from those of 2017?
Bear: Blockchain will go from hype to reality in 2018. In 2017 there have been many proofs of concepts, especially on the digitising of letters of credit, etc. This was all proven from a technology point of view, but moving from that into real, high-scale industrialised business networks, that’s a whole different ball game.
I think both in the early part of next year – with we.trade – and the latter part of next year – with some of the other initiatives going on, like Batavia – this will then become primetime. We’ll have the examples of them adding value and gaining quicker masses next year and what the production will look like in practice.
GTR: When talking blockchain, what will be the main challenges in 2018?
Bear: I think there are two areas. I don’t think there’s too much doubt about the proving of the technology, but one challenge will be proving that the business networks can be operated effectively. When there’s a problem, what are the actions that need to take place? How do we ensure the onboarding of banks is smooth and efficient so it doesn’t become a constraint when banks wish to join? There are operational considerations that will be tested for the first time in production that will be a significant hurdle.
Secondly, when there are transactions running on the networks, when additional banks are beginning to onboard, what impact will that have on the broader market? Both from a consumer point of view and for the banks themselves in terms of the choices that might exist between various consortia.
I use the analogy of a new railroad. In the US in the 19th century, tracks were being laid down by different railroad companies, in different directions. I think 2018 will be where we move from the blueprints into the actual, physical railways and it will be fascinating to see how these separate networks will prosper, and to what extent the networks may join at some stage.
Another active player in this space is R3, which has also made a lot of progress in developing blockchain solutions for trade finance. Do you consider them a competitor?
Bear: It’s a multifaceted relationship. R3 is a member of the Hyperledger project, for example, so in that context we work together. We are also working on a major blockchain project outside of trade finance where they are sub-contractors with IBM.
And then R3 has Corda, which obviously competes with Hyperledger Fabric. R3’s Marco Polo is a business network that is being built on top of Corda and in that sense is an example of the phenomena that I was talking about before, a grouping of banks creating another network, another railway, and it will be interesting to see how these things will build and grow, and also how they can potentially interoperate or join – or whatever the market decides – in the later stages.
GTR: Ultimately, is there space for both of you in the market?
Bear: Absolutely yes. Competition is good. I can’t comment specifically on R3, but we welcome competition, it’s exactly what we need.
R3 and IBM share a commitment to open source as the means by which the technology will really be adopted within the industry. We may have different views on how that is best achieved, and the market will decide which is the most effective.
GTR: Is it likely that these platforms will be able to inter-operate at some point?
Bear: I think it will be market-led. If the consumers – the corporates in this context – or the banks that are proving service to those corporates, wish networks to come together, then I’m sure providers like ourselves and others will have the incentive to facilitate the interoperability. Because at the end of the day these are all open-source environments, we’re not talking about proprietary technologies at all, so it’s going to be driven by the community.
The other point I’d mention, as I said R3 and IBM may compete at one level but we also partner in the sense that we’re both members of Hyperledger. Essentially any provider of a blockchain technology who wants to open source it can provide it into the Hyperledger project, and it becomes one of a family of technologies that then provides more choice and more options to everyone. Hyperledger therefore becomes the potential means by which these technologies can merge. It is probably the broadest church to be able to facilitate that process, and we already have a lot of competitors coming together.
The post Could 2018 see R3 and IBM find middle ground on blockchain? appeared first on Global Trade Review (GTR).