Babbitt Column | Application and Thinking of Blockchain Technology in Financial Field

In the era of the digital economy, digitalization will penetrate into various industries. Among them, financial services are one of the industries with the most blockchain technology projects and the most abundant scenarios, such as supply chain finance, asset securitization, credit reporting and risk control. Wait. For financial institutions, data is the core asset and plays an important role in risk control and credit. The advantages of blockchain technology in solving information have made it a lot of applications in the financial industry. At present, the main scenarios of blockchain technology application in the financial industry include: trade finance and financial supervision. This paper mainly introduces the specific application of blockchain technology in trade finance and financial supervision.

 

First, the impact of blockchain technology on the financial sector

 

The distributed storage and data of the blockchain technology cannot be falsified, and the requirements for the protection of information and data security and transaction data in the financial field are highly consistent. Therefore, the main impacts of blockchain technology on the financial sector include:
01 Enhanced Information Storage
Before the emergence of blockchain technology, domestic and foreign transactions need to rely on intermediaries to complete the specific liquidation matters between transaction entities. Take the banking industry as an example. In the structure of a bank as a third-party intermediary, every payment business requires the connection between the bank and the consumer, the bank and the merchant, and the bank and the central bank to complete the payment process. A complicated process requires the bank to check the accounts multiple times and settle the inventory to ensure that the transaction process does not leak. The clearing procedures vary from country to country, which may result in a remittance that takes two to three days to arrive, with very low efficiency and a large amount of funds in transit, as shown in the following figure:
(Source: McKinsey: 2018 China Blockchain Industry Analysis Report)
In the blockchain system, each block carries the information of the previous transaction and stores and shares it on the chain, which reduces the complicated circulation procedures in the traditional transaction process. Therefore, how the blockchain technology emerges is the traditional banking industry. Technical support was provided to improve its business model. The blockchain solution eliminates the need for intermediaries in cross-border payments, as shown in the following figure:

(Source: McKinsey: 2018 China Blockchain Industry Analysis Report)
02 Improve financial service efficiency
The financial services industry is an important driving force for global economic development and one of the most centralized industries. The traditional financial service model has problems such as inefficient information transmission and high cost of financial services. The attributes of blockchain technology such as distributed storage, non-tamperable, and timestamp verification can help financial institutions optimize financial infrastructure, reduce the degree of information asymmetry, improve financial service efficiency, and reduce costs. For example, the A company plans to lend to the bank. Generally speaking, the bank needs to review the qualifications of the enterprise. For the bank, the pre-loan review cost is high, and the bank tampering data may cause the bank to review insufficiently, but Based on blockchain technology, banks can conduct pre-loan investigations and loan reviews in an electronic process. At the same time, relying on the attributes of the blockchain that cannot be tampered with, it can greatly improve the quality of bank review and improve the efficiency of financial services.
03 Strengthen data security and protection
In the financial business, financial institutions need to spend a lot of manpower and financial resources to maintain the docking work between the information flow and the capital flow, but still can not maintain the transaction balance between the transaction entities. For example, in practice, the settlement of payment between two multinational corporations is often handled by banks. If the information between the two enterprises is not accurately connected through the bank and the information is not effectively transmitted, one party may be caused by the lack of data information. huge loss. The blockchain technology can realize direct transaction without the participation of third-party intermediaries, and complete the traceability work through different blocks in the chain. Each link and each person who passes through the circulation funds will be recorded in real time, and the block will be utilized. The distributed accounting and non-destructive modification of chain technology can enhance data security and prevent financial risks.

Second, the specific application of blockchain in the financial field

 

01 Trade Finance
1. Status of trade financing

Trade finance is the use of structured short-term financing tools by banks to finance the parties based on goods and accounts in commodity transactions. It is one of the most important businesses in the banking business. For example, Company A applies for trade financing from Bank B. After reviewing the transaction contract and financial information, Bank B will issue a loan for trade to Company A if it confirms that it meets the loan requirements.

In the above process, because the bank needs to review the applicant's production and operation status and the collateral status, the trade financing process has complicated and cumbersome verification procedures, poor timeliness and information opaque. Banks need to check a large amount of information, data and funds between the two parties. The participants of the transaction have a single source of information, and the information is opaque and incomplete. This not only causes the transaction to face significant risks, but also causes higher financing costs for the enterprise. In practice, the following reasons often lead to difficulties in financing SMEs, and it is difficult for banks to match high-quality SMEs.

First, from the perspective of efficiency, because the amount of SME loans is not large, but the procedures for the issuance of each loan, the management links, such as investigation, evaluation, approval, post-loan management, etc. are all the same, which increases the cost of bank loans. .

Second, most of the types of loans provided by banks are not suitable for the development of small and medium-sized enterprises. The types of loans are single, the term is too long, and interest rates are too narrow. This model does not suit the needs of SMEs for funds.

Third, banks implement strict risk control systems to improve the quality of loans.

2. Application of blockchain technology in the field of trade finance

According to the financial credit account website of Internet technology, the financial account-book technology company and the small and medium-sized bank Internet Finance Alliance (IFAB) jointly created a blockchain-based IFAB trade financing network, which was launched in March 2019. . Financial Accounts and China Railway Construction Asset Management Co., Ltd., China Storage Development Co., Ltd., Pangang Group Tianfu Hui Financial Management Co., Ltd., as well as Jiangsu Bank, Suzhou Bank, Jiaxing Bank, Nanyang Commercial Bank, Jincheng Bank and many other large enterprises Sign a cooperation agreement with the bank.

The IFAB trade network connects banks and SMEs and helps companies and banks better develop their trade finance business through blockchain technology. The bank's own enterprise customers can access the IFAB network through the bank's silver enterprise. The customer data is stored in a separate bank system and is not shared between banks. The new enterprise users of IFAB Tradelink Network can pass the market platform (Market- Place) After accessing the network after certification, the IFAB network can automatically match the bank according to its business characteristics and its own situation, providing accurate financing push services to help them obtain a better financing experience, and banks can also efficiently obtain quality enterprises.

02 Financial supervision
1. Status of financial supervision

For financial supervision, both external regulators and group internal auditors face the following problems:

First, the financial system information of the regulated enterprises is asymmetric, and the supervision of the enterprises depends on the business information of the enterprises. The information asymmetry intensifies the difficulty of supervision and implementation.

Second, some supervised companies arbitrarily misappropriate funds and data fraud, resulting in lack of credible support and lack of trust in monitoring. For example, the risk of P2P online lending that has already occurred before, there are problems such as the platform randomly diverting funds and even running the road, which makes it impossible for investors to withdraw cash, and it is difficult to supervise the regulatory agencies.

Third, the supervision of financial regulatory agencies is often limited to specific areas, which tends to lead to low regulatory efficiency, difficult to grasp the entire market information, and there is a serious lag. In recent years, Internet financial products have emerged. Although the regulatory authorities have strengthened the special supervision of Internet products and continuously issued relevant regulatory documents, they still face the problems of “regulatory lag” and “information asymmetry” in the ever-changing Internet finance field.

2. Blockchain technology application of blockchain public welfare poverty alleviation fund supervision

Due to the problems of issuing a large number of approval levels, lagging funds and delaying the misappropriation of funds in the process of issuing public welfare poverty alleviation funds, Guizhou has made great efforts to improve the efficiency of poverty alleviation funds in order to further optimize the poverty alleviation fund allocation process and improve poverty alleviation fund management efficiency.

On October 30, 2016, ICBC signed a strategic cooperation agreement with Guimin Group, which is responsible for poverty alleviation work in Guizhou Province, and adopted a joint construction method to build a blockchain management system for poverty alleviation. According to the Guizhou Daily, the goal of the blockchain management system is to:

First, give full play to the characteristics of “multi-party consensus”, “information sharing” and “transaction traceability” of blockchain technology to realize the transparent operation of poverty alleviation projects and approval of funds.

Second, through the docking with the banking system, the poverty alleviation funds will be allocated information and projects, and the approval information of the funds will be checked to ensure that the poverty alleviation funds are earmarked for special purposes and avoid misappropriation.

In the Poverty Alleviation Fund Blockchain Management Platform, Guimin Group built the Guizhou Poverty Alleviation Fund Management Chain for the management of poverty alleviation projects and the approval of funds; ICBC built the Guizhou Poverty Alleviation Fund to confirm the use of funds. Apply for and handle the transfer of poverty alleviation funds. The management chain of the Guimin Group and the confirmation chain of the Industrial and Commercial Bank of China, the double chain realizes the chain interconnection, and the Guimin Group and the Industrial and Commercial Bank of China are the link nodes. On May 16, 2017, the poverty alleviation management platform successfully allocated the first 1.57 million yuan of poverty alleviation funds, marking the successful use of the “transaction traceability” and “non-tamperable” of the blockchain technology to realize the “transparent use” of poverty alleviation funds. The goal of precision delivery and efficient management.

At present, the Guizhou provincial government is gradually introducing information such as poverty alleviation households and social integrity into this system consisting of a financial chain and an administrative chain. The follow-up will quantify and accurately evaluate the effectiveness of each poverty alleviation fund.

Blockchain technology has greatly promoted the development of the financial industry. Through the secure storage and data transmission technologies, decentralized and other underlying technologies ensure the security of assets and personal information in the transaction process. Although the blockchain technology has not been widely used in the current financial industry development, with the continuous exploration of technology, the value of blockchain technology will be more recognized.

 

Author: Yun-Feng Chen, Zhong Lun Law Firm Wende senior partner, director of the Finance Committee of the Internet