NEW YORK (Reuters) – Commerzbank AG (CBKG.DE), Bank of Montreal (BMO.TO), Erste Group Bank AG (ERST.VI) and CaixaBank SA (CABK.MC) have joined an initiative launched by UBS Group AG (UBSG.S) and IBM Corp (IBM.N) aimed at building blockchain-based technology to support trade finance transactions.
The platform called Batavia would help banks and their clients automate the trade finance process, which remains highly manual and paper-based, the participating companies said on Wednesday.
In trade finance, banks provide funding and other services to importers and exporters to facilitate commerce.
Among other things Batavia will allow parties to track a transaction from when a shipment leaves a port to when it reaches its destination.
Blockchain, which was first developed to power cryptocurrency bitcoin, is a shared ledger of data that is maintained by computers, rather than a central authority. Over the past few years, banks have been investing millions of dollars in adapting the technology to run some of their data heavy and complex processes.
Banks have been collaborating and forming consortia to develop the technology.
Trade finance is considered a good use for the technology because it involves numerous parties such as the institutions financing the transactions, buyers, sellers, transporters and inspectors.
Currently each party maintains its own records, which can lead to mistakes and delays. The new platform aims to provide all participants with a shared record, reducing errors and driving more business.
“Trade finance is a perfect use case because there are so many participants in a trade ecosystem especially when you talk of global trade,” Marie Wieck, a general manager at IBM Blockchain, said in an interview. “Digitizing and creating a level of trust is a perfect accelerator (for business).”
A pilot is expected to take place with the new banks in the first quarter of 2018, Wieck said. The project was first announced in 2016.
The platform would also use so-called smart contracts, or computer programs on the blockchain that automatically enforce the terms of an agreement. For example the platform would release payments for a transaction along each step of the trade process.
While the finance industry continues to experiment with blockchain, it is still in its early days and some caution that it may take several years before it leads to any benefits.
IBM is also working with Nestle SA (NESN.S), Unilever Plc (ULVR.L), Wal-Mart Stores Inc (WMT.N) and other large food and retail companies on a separate blockchain project to track food supply chains.