Bank Blockchain Initiatives – Friend or Foe?
For a relatively new (and growing!) company like TangoTrade, you may think that the various bank blockchain initiatives to improve the letter of credit service would be perceived as threatening to our business. However, I see them as bringing credibility to the approach that we’re spearheading, and they remain a long way off from rolling out the benefits of blockchain to the masses.
The banks participating in these pilots are helping demonstrate that blockchain technology can bring significant value to a range of B2B payment challenges. Removing intermediaries, creating a shared and trusted ledger, and reducing inefficiencies are key objectives that can be achieved with blockchain technology. However, these banks are facing significant hurdles when it comes to rolling out the technology beyond limited pilots.
If you’ve been following the space, you will have noticed that there are a handful of blockchain pilots being conducted by a number of different banking consortia around the world, with code names like Batavia, we.Trade, Marco Polo, and others. For conducting low-risk pilots, their slow, methodical, limited-scope strategy would seem to make sense.
However, this fragmented approach, with different groups of banks running their platforms on different private blockchain networks, creates a huge interoperability challenge. The benefits of a shared ledger (via blockchain) will be lost as different banks in different regions are part of different consortia. If an importer’s bank is part of a different consortia than an exporter’s bank, then they’re both out of luck, and it’s back to the same old letter of credit process that we all know (and hate).
And when you dig a little deeper, these bank efforts also serve as an unstated admission that the current letter of credit service is really quite broken. Costly inefficiencies, time consuming processes, and lengthy manual work all contribute to a poor service. Too bad that these bank initiatives will do little to make life easier for importers and exporters around the world any time soon.
~Scott Reynolds, CEO, TangoTrade
Marco Polo: https://www.marcopolo.finance/