“After the exposure of Chengxing Holdings’ alleged supply chain financial fraud, our supply chain financial risk control audit scale has also been greatly tightened.” Zhao Cheng (pseudonym), head of a large domestic third-party financial institution, reported to the 21st Century Business Herald. The reporter revealed that today, as long as it is based on the supply chain financial financing business of the accounts receivable, the risk control department must not only verify the authenticity of each trade contract and invoice, but also “track” the specific flow of each fund, and often talk about it. The head of the organization in all aspects of the supply chain finance business confirms that there is no “relevance” between upstream and downstream enterprises to capture the financing financing of the supply chain.
"However, these measures may not completely resolve all the risk of financial fraud in the supply chain. If the supply chain financial fraud incident is exposed, the upstream and downstream enterprises in the industry chain can clarify the responsibility by tampering with the original trade information, so it is difficult for financial institutions to find the faulty party. Accountability recovery." Zhao Cheng bluntly.
Many reporters in the 21st Century Business Herald have learned that many financial institutions have begun to use the information of blockchain technology to tamper with the characteristics of the chain chain-based supply chain financial business operations to avoid the above risks.
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“After all, blockchain technology ensures that trade information in all aspects of supply chain finance is not tampered with – even in the event of a supply chain financial financing fraud risk, financial institutions can find relevant negligence accountability recovery based on these raw trade information.” A person in charge of the risk control department of a financial institution pointed out. More importantly, the distributed storage characteristics of blockchain technology can further expand the scope of upstream and downstream enterprises covered by supply chain financial services, so that financial institutions can more fully and accurately identify whether there are self-selling related transactions. Take the supply chain financial financing.
However, he found that although the financial operation platform of the blockchain supply chain developed by many financial institutions has taken shape, the upstream and downstream enterprises are willing to cooperate with the “contribution” of the corresponding financial data, the latest business trends, the actual controller and shareholder information, etc. The information still has major challenges. Many of them are worried about system instability and information leakage, which leads to the unsatisfactory effect of the actual operation of the entire blockchain supply chain financial operating system.
“Fortunately, blockchain-based financial operations processes have been widely used in cross-border trade finance, and it is not difficult to migrate to supply chain finance,” said a bank IT technical unit. However, he found that what is urgently needed to be solved is the problem of high cost of maintenance and optimization of blockchain technology systems. This has led to the rising cost of supply chain financial loans, which is unable to achieve the effect of technological advancement to reduce loan costs.
Retrieving with blockchain technology
“After the exposure of Chengxing Holdings’ alleged supply chain financial fraud incident, the company’s top management was also scared.” Zhao Cheng recalled that the company’s senior management once planned to stop all supply chain financial financing operations. Although the business unit finally persuaded the executives to give up the idea, the “cost” of the business is that the business, risk control, and technology departments must quickly come up with a complete set of solutions to prevent the risk of financial fraud in the supply chain.
“The three departments have come together to think of blockchain technology.” He said that in the eyes of the heads of the three departments, the current accounts receivable of Noah’s wealth and several large e-commerce platforms around Chengxing Holdings The dispute over the authenticity of the contract is an ongoing dispute. One important reason is that the parties lack an information sharing platform to conduct “confirmation verification” on the actual flow of trade contracts, accounts receivable invoices and supply chain financing funds, resulting in the implementation of the words Arguing endlessly.
The supply chain financial operation platform based on blockchain technology can solve this pain point: in the environment of distributed storage and information tampering of blockchain, suppliers, core enterprises, distributors, logistics warehousing companies, financial institutions, etc. Participants can use the blockchain technology to “share” the transaction details of each link in the trade industry chain, and the relevant node information can be determined through the whole network and cannot be tampered with. Therefore, even if the supply chain financial business encounters the risk of fraud, financial institutions can rely on these unchangeable trade contracts, commodity logistics, invoices and financing capital flow data to find the corresponding faulty party to recover the loss of funds.
“More importantly, the blockchain-based supply chain financial business operation process can cover the trade information and commodity flow of upstream and downstream enterprises in a larger scope, so as to judge whether the initial seller and the final buyer of the trade industry chain belong. Affiliated enterprises have made it possible for related enterprises to apply for self-selling and self-purchasing, and to apply for a large number of accounts receivable invoices to apply for financial financing in the supply chain. This is also a new lesson learned from Chengxing Holdings’ alleged supply chain financial fraud incidents. Because Chengxing Holdings has adopted a “self-selling and self-purchasing” behavior, it has taken a large amount of accounts receivable through a large e-commerce platform. The contract invoices finally “fetched” billions of funds from financial institutions such as Noah Wealth and Yunnan Trust.
He found that the current blockchain-based supply chain financial operation platform has taken shape, but it is not enough to have "hardware".
"A lot of upstream and downstream enterprises have to input a lot of financial information, trade information, shareholder information and real controller information in this operation platform, and they refused to rely on the system to be unstable and worried about the leakage of trade secrets. Zhao Cheng said frankly that now they can only persuade upstream and downstream enterprises to join through the core enterprises of the trade industry chain (also the supply chain financial financing borrowers), but this will be a relatively long and arduous process.
Copying cross-border trade financing is “not easy”
Despite the challenges, Zhao Cheng is confident that blockchain technology can solve the risk of financial fraud in the supply chain, because he found that blockchain technology has been well applied in the field of cross-border trade financing, effectively solving information on all aspects of cross-border trade financing. The risk of financing fraud caused by asymmetry.
In the past, when Chinese companies imported raw materials from overseas, they often used the letter of credit to settle the payment of funds. However, the traditional letter of credit payment operation involves the verification of the paper document (the bank needs to confirm the authenticity of the trades of the parties to avoid fraudulent loans), so the bank and the trade parties need to repeatedly communicate and confirm all kinds of information, resulting in the whole credit. The payment payment process is quite lengthy, and sometimes there is a payment default.
"There is a large amount of information asymmetry between traders, banks and shipping companies, which has led to individual companies taking the opportunity to fictitious trade contracts to defraud trade financing, so that banks will eventually have to sacrifice business efficiency and give priority to ensuring financial security." A person from the supply chain finance business unit said.
Fortunately, the rise of blockchain technology has enabled many banks to see new solutions that combine business efficiency and financial security.
Specifically, some banks have attempted to combine the distributed ledger technology of the blockchain with the electronic bill of lading function to create a new cross-border trade finance business operation platform. In this platform, the letter of credit operation process is almost completely compatible with the traditional letter of credit process (negotiating the terms of the letter of credit, application, issuance, notification, request for modification and approval, submission of documents, resolution of discrepancies, and bill of exchange settlement instructions), and The electronic bill of lading function is integrated; the biggest “different” is reflected in the fact that the bank, the trading parties and the shipping company are connected to a single blockchain network to handle the document exchange and related information verification work, so that the original 4-5 days can be completed. The exchange of certificates will be compressed to one day, and the verification of the authenticity of trade contracts will be effectively resolved.
“We are trying to transplant this cross-border trade financing operation platform based on blockchain technology to the domestic supply chain finance business.” A head of the IT technical department of a bank disclosed to the 21st Century Business Herald reporter, but the cost of transplantation is greatly Exceed their internal expectations. The reason is that the former business process and node settings are completely set according to the cross-border trade financing business. If you want to transplant to the supply chain finance field, it is necessary to adjust all the business operation processes and node settings to match the operational characteristics of supply chain finance. The resulting underlying technology research and development adjustment investment.
“We made a preliminary estimate internally, which led to the break-even of the supply chain financial business based on blockchain technology. The actual annualized loan interest rate is about 40 basis points higher than the traditional business model. It is estimated that many SMEs will be discouraged. He pointed out that the bank is now planning to increase the introduction of the R&D talents at the bottom of the blockchain technology to “reducing operating costs” by self-constructing technical systems that support business operations.
The head of the bank's IT technology department revealed that although this has caused banks to pay more labor costs, bank executives believe that as long as the underlying technology of the blockchain can be “self-built”, the cost of system maintenance and optimization will continue to fall. In the end, it will bring in a lower loan interest rate and a higher business growth space.
Source: 21st Century Business Herald
Author: Chen Zhi