Xue Jinhui: Commercial Bank Blockchain Application Practice Path

Author: Xue Jinhui Special expert of this journal, domestic senior financial practice expert

Source: Finance & Trade, No. 1 of 2018

Key points

The application of the blockchain of commercial banks should not be developed from the very beginning, but the idea of ​​how to cut into the actual business and realize the function as the development principle. Only solving the problem is the innovation value brought by the blockchain. .

In 2017, the hottest term in the field of financial technology is not the “blockchain”. Based on the underlying assumption of “technical trust”, the blockchain provides a new environment for people in the economic life, between enterprises and enterprises, between people and enterprises, and with information asymmetry. The technical solution, this “pass-and-trust” technology may give the social economy and finance a more efficient and cost-effective mutual trust environment. Klaus Schwab, founder of the Davos Forum, believes that the blockchain is an important achievement in the fourth industrial revolution following steam engines, electrification and computers. It is estimated that by 2025, the total global GDP will be 10% will be stored using blockchain technology.

At present, the financial industry is leading the way in the blockchain, with banks, securities and insurance accounting for the highest market share. As a cutting-edge technology, the blockchain has become the next development trend of the industry, and may even become a singularity to change the existing format. Domestic commercial banks, whether large state-owned banks, joint-stock commercial banks, and city commercial banks, have successively issued blockchain sounds in different business products and trading scenarios, exploring the practice of blockchain technology landing in actual transactions. At the same time, the application of commercial banks in the blockchain has its own focus. The industry has not yet formed a blockchain direction with industry standards, extensive scenarios, and general adaptation.

Find the best application area for blockchain

As the most influential credit intermediary and information intermediary in the financial transaction chain, the bank must understand the technical mechanism and credit implementation of the blockchain in the long run to improve the bank's operational efficiency and reduce capital and credit. In the short-term, in the existing institutional framework, if there is no programmatic design and consensus on the level of supervision, laws and regulations, industry norms, etc., the blockchain may be difficult to form industrialization and scale in commercial banks. Development.

At present, commercial banks actively embrace the situation of blockchain. First, based on the competition strategy, pioneers in the industry will gain obvious advantages. By formulating industry standards for blockchains, they can become industry standards and business standards, and become new technologies. When the industry is widely used, the pioneers can be in a favorable position and become the benchmark for change in the industry. Second, the blockchain application can bring greater improvements to the business and create more value. For example, after cross-border payment settlement + blockchain, the transaction speed can be calculated in seconds, and the efficiency is greatly improved compared with the original several hours of transaction speed. At present, the banking industry urgently needs to find the best application areas and best application scenarios of blockchains, aiming at specific application landings. It is more practical to carry out research on blockchains in this guiding ideology.

Point to face is a realistic choice

In the “finding the best use of blockchains”, the basic path is “point-to-face”. The use of "points" can have multiple choices, from the underlying data information storage, banking system interaction level, to transaction settlement optimization, financial asset transactions, credit related products and documentary documents related to operational operations, etc. A breakthrough in blockchain applications. The difficulty lies in the use of “face”, that is, the large-scale application of industry standards and norms requires the leadership and promotion at the national level. Such as the formation of digital currency standards, or in the field of payment settlement, social public trust and credit reporting between banks, involving the legality of the use of technology and the legal basis of laws and regulations, it is not recommended that commercial banks carry out their own.

In the promotion path of “point-to-face”, the author believes that at present, commercial banks are the best choice for supply chain finance in the application scenarios of credit granting. Supply chain finance is based on the analysis of the internal transaction structure of the supply chain, using the credit model of self-compensated trade financing, and introducing risk control variables such as core enterprises, logistics supervision companies, and capital flow guidance tools to the supply chain. Different nodes provide closed credit support and other financial services such as settlement and wealth management. In short, supply chain finance transforms the uncontrollable risks of individual enterprises by controlling the flow of business, logistics, capital flow, and information flow in a “four-in-one” manner and acquiring comprehensive information on the chain through multiple dimensions. The overall, systematic and controllable risk for the supply chain enterprise. Supply chain finance needs to monitor the large amount of data formed in the basic transaction at the risk control level. The characteristics of the blockchain technology can intelligently process the authenticity, validity and integrity of the data information, and optimize the supply by using the blockchain technology. The use of data in chain finance can take advantage of “1+1>2”.

Public chain, alliance chain or private chain?

The public chain needs the government and the highest level of regulatory agencies to lead the way. In the way of commercial banks applying blockchain, both the alliance chain and the private chain should be actively explored.

The private chain is mainly used for internal management of commercial banks, such as financial accounting between the head office and branches/sub-banks, payment settlement processing, especially large-scale commercial banks operating across countries/regions, and optimizing internal cross-border/inland through blockchain technology. Liquidation to achieve optimal management of the capital position.

The alliance chain is between the private chain and the public chain. At present, most financial institutions use the alliance chain as a development path to jointly implement the blockchain application technology in the role of the founder (leader) or the participant of the alliance chain. The essence of the alliance chain is to solve the trust problem under the chain. Through the scenario of the blockchain alliance, a business alliance is formed among the banking institutions to strengthen the offline communication of transactions between commercial banks, such as the Financial Blockchain Cooperation Alliance (FISCO). The key to the realization of the alliance chain is that the “alliance” in the system stands up as an enabler, establishes the technical foundation and standards, introduces more alliance participants with an open attitude and policies, and realizes the value enhancement of the alliance ecology. Focus on the establishment of the alliance chain between banks and enterprises, through the introduction of core enterprises and upstream and downstream enterprises, connect more financial institutions, empower the entity, serve the industry, and provide financial services to the small and medium-sized enterprises through the power of science and technology.

Supply chain finance + financial blockchain is the best choice

The use of blockchain in supply chain finance is mainly based on the following three aspects: trusted data, smart contracts, and transaction confirmation rights, forming an operational model of “supply chain finance + financial blockchain”.

Trusted data. It can meet the mutual verification and matching of multiple sources of information in the supply chain, and solve the pain point of the financial party's distrust of transaction data.

Suppliers, manufacturers, distributors, retailers, and related users in the supply chain are chained together. In the process of commodity circulation, they also involve many links such as warehousing, logistics, and insurance. At present, in addition to core enterprises and Tier 1 suppliers/distributors, the degree of informatization of SMEs at other levels in the chain is difficult to meet the data standards of commercial banks. For example, the ERP system between different levels on the chain is generated by different system service schemes, and the information transmission between systems lacks consistency, forming an information island with each other. For commercial banks, it is difficult to obtain effective data to support risk judgment and Management, it is also difficult to verify the authenticity of the transaction.

According to the distributed, non-tamperable and traceable characteristics of blockchain technology, multi-agent data uplink and multi-dimensional data verification, such as procurement data and logistics data matching, inventory data and sales data verification, core enterprise data and downstream Chain data verification, etc., improve the validity and reliability of data, and reduce the process friction caused by information asymmetry.

Smart contract. It provides automated operations for banks to control supply chain financial processes, and solves the painful problems of offline manpower monitoring. Taking property financing as an example, through the implementation of blockchain smart contract through the Internet of Things, the goods arrive at the designated delivery place, the IoT system and the blockchain protocol data exchange, and the payment instructions are sent to the bank through the smart contract, which can be automatically Completion of fund payment; taking the risk-sharing and mitigation measures based on core enterprises as an example, once the risk compensation trigger conditions agreed in the supply chain agreement are met, the core enterprise can perform fund transfer or cargo delivery procedures according to the smart contract to improve the business. Operational efficiency reduces the time lost due to manual operations and human judgment.

The transaction is confirmed. Realize the automatic confirmation of the movable property rights for each participant in the supply chain, and form a non-tamperable record shared by multiple parties on the blockchain to solve the pain points in the existing rights registration and rights realization. Taking the accounts receivable right as an example, through the blockchain docking core enterprise ERP system, the supplier's accounts receivable information can be digitally confirmed through the system data of the core enterprise, and the application scenario can be extended to the property right certificate. Such as warehouse receipts; or through the information provided by the core business to achieve reverse rights recognition and rights traceability. For the capital side and the upstream and downstream enterprises in the supply chain, it can not only guarantee the authenticity of the transaction, but also provide financial institutions with new ideas and channels for supply chain financial services.

The essence of credible data, smart contracts, and transaction confirmation is to strengthen the foundation of “trust” in modern economy and finance, and to introduce institutional trust and technical trust through blockchain technology, which in turn reduces the “no trust”. Trading friction and financial costs. The innovative application that can be explored under the framework of “supply chain finance + financial blockchain” has great potential and space.

The specific application of “supply chain finance + financial blockchain” has three levels. First, the enterprise is willing to accept the transformation of blockchain technology, reshaping the business ecology and affecting upstream and downstream enterprises. Second, the data application end, district Blockchain technology transforms large amounts of data in the supply chain ecosystem into valuable big data through blockchain technology; third is the supply chain financial system side, embedding blockchain technology in business processes to optimize customers through mileage optimization Experience.

Suggested path for commercial banks to use blockchain

The author believes that the commercial bank's use of blockchain technology should be based on the alliance chain between banks and enterprises, and through the "supply chain finance + financial blockchain" model, to enhance the "trustworthiness" in the supply chain financial business. Innovation in data, smart contracts, and transaction confirmation.

Through the "supply chain finance + financial blockchain" model, for commercial banks, it is the key to opening long-tail customers with a market capacity of 10 trillion yuan and the blue ocean market. With the help of blockchain technology, through the application of blockchain real data, effective rights, etc., bank supply chain finance can extend customers to the upstream of the supply chain (such as secondary suppliers, etc.) and downstream (such as secondary The seller), under ideal conditions, can achieve a bank to do the whole chain, a bank to do a national business breakthrough.

Taking the accounts receivable end as an example, the bank generally only intervenes in the direct payables of the core enterprises due to the confirmation of rights and operations, that is, the business of the first-tier suppliers that have determined the accounts receivable through the core enterprises. However, there are often many financial institutions interested in intervening in Tier 1 suppliers. Tier 1 suppliers have strong bargaining power and fundraising capabilities. For Tier 1 suppliers, capital supply exceeds demand; and Tier 2 and Tier 3 supplies Businesses, generally through credit sales, are subject to greater financial pressure, but because their credit transfer is less than the level one supplier, they often cannot obtain financing from financial institutions. In this scenario, if the blockchain technology is introduced, the “financial blockchain” will be built by the bank and the core enterprise, and the core enterprise will be linked to the first, second, third or higher-level transactions, and the financial institution can Financing for Tier 2, Tier 3 and even upstream suppliers: One way is to split the accounts payable from the core company's accounts payable through blockchain technology, such as the core enterprise needs to supply to Tier 1 Merchant A pays 1 million yuan, and A needs to pay 700,000 yuan and 250,000 yuan to the secondary suppliers B and C respectively. The bank can provide financing for the acquisition of the B and C's uplink accounts, and then pass the smart contract. Automatic clearing, after the final core enterprise pays 1 million yuan, the targeted payment will recover the principal and interest of the financing. Another way is to monitor the warehousing, logistics and other information of each supplier through the business flow information, to realize the logistics of the blockchain, to obtain the automatic confirmation of the ownership, and to form the intelligence of the business flow, logistics and capital flow. Contracts, “There is a business flow that will generate logistics, and there must be capital flow in logistics.” Finally, the inventory, receivables, and payable information on the integrated blockchain will be given online financing.

Through the above cases, the key role of the blockchain is to reduce the “uncertainty” of operations and processes in basic trade, and to reduce the risk of accounts receivable confirmation and goods/movables confirmation through blockchain, to automate, Intelligent speeds up the speed and efficiency of business operations and solves the operational pain points in the current banking supply chain financial business.

Developing financial blockchain with integrated thinking

The use of blockchain in supply chain finance is still at the stage of exploration. The reason is not the technical barrier, but for two other reasons. First, the function of the blockchain itself has to be integrated with the new technology. The need to continuously find the best combination of technology from the "best use area of ​​blockchain". Second, the ecological integration of the blockchain itself is not high, and it needs to be improved in the following aspects: such as blockchain + Internet of Things, to achieve more valuable "interfacial transactions"; blockchain + big data, Improve the efficiency of data; such as blockchain + industry, improve the applicability of the industry; blockchain + new network, support cloud service capabilities. Third, it is necessary to have a policy orientation of national top-level design, introduce corresponding policies and regulations, and clarify the legal effects, rights effectiveness, and process effectiveness under the application of new technologies, so that the blockchain has policy advantages in the development direction of physical services, which can be effective. Service industry, service the real economy.

There is also an important consideration in the development of the blockchain in the banking industry: cost considerations. Regardless of large, medium and small banks, learning from the lessons of the development of IoT finance in banks, if the hidden costs of innovative financial costs and impact rules are too high, even if innovative technologies have great potential, they are subject to the benefits Uncertainty and financial cost assessment indicators will likely lead to innovations that fail to achieve the desired results. The only way to circumvent any of these risks is to find the value points of the blockchain in the existing business model and to reflect the business improvements brought by the blockchain technology in the development process. These improvements may be reflected in multiple dimensions: Controls, products, customer experience, or may include improvements to the overall process described above.

In summary, the exploration and advancement on the eve of the outbreak requires the right direction and the right path. The application of the blockchain of commercial banks should not be developed from the very beginning, but the idea of ​​how to cut into the actual business and realize the function as the development principle. Only solving the problem is the innovation value brought by the blockchain. .

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