Blockchain is one of the exciting technology for the financial industry. The Monetary Authority of Singapore (MAS) had partnered with banks and blockchain technology company, R3 to pilot a proof of concept to use blockchain for payments in November 2016.
That came hots on the heels of the report that MAS was partnering with banks such as HSBC to come up with trials on blockchain for trade finance in August 2016.
The potential of blockchain to simplify complex trade finance process and to provide immutable records for regulatory and financing purposes have been much heralded. However, they have always been in the trial stage. It is in this background that we have the groundbreaking news that a new company had completed its proof of concept for supply chain blockchain.
Enhanced Visibility and Transparency
Chained Finance announced that they have used their blockchain platform to secure funding of US$6.5 million (RMB$45 million) for small and medium enterprises (SME) in China. Chained Finance claims that they are serving a largely untapped market of 40 million SMEs and 85% of them cannot get supply chain finance from existing lenders. The existing lenders are constrained by the lack of technology and the complexity of the process.
As supply chain finance is highly complicated, it is not only manpower intensive but it also hides layers of financing in the process. Chained Finance would use Blockchain to reveal these different layers of financing which would allow lenders to be more comfortable especially with SMEs. In this way, they can optimize cash flows for various types of supply chain financing.
Supply chain financing had been tainted by fraud in recent years. The infamous Qingdao port fraud case cost Standard Chartered Bank US$193 million losses when businessmen used the same invoices to get financing for metals in 2014. Blockchain stop such malpractice by being able to authenticate documents.
Big Ambitions & Bigger Backers
Chained Finance aims to triple the SMEs that would get financing in the three major industries of garment, auto and electronic manufacturing. They didn’t reveal the time frame for that in their press release. Chained Finance is starting their operations with 40 employees in Shanghai and they have the backing of Dianrong and FnConn.
Dianrong is the premier peer to peer lending platform which was founded by co-founder of Lending Club, Soul Htite and private equity investor Kevin Guo in 2012. Similar to Lending Club, Dianrong provides a trusted platform for borrowers and lenders to interact for a cut of the transaction. Currently, Dianrong has over 2600 employees and has facilitated $25 Trillion Yuan of investment from 2.5 million investors. Standard Chartered Bank is one of the major initial investor.
FnConn is the subsidary of contract manufacturer Foxconn. FnConn specializes in providing supply chain financing to the upstream and downstream suppliers of Foxconn. Foxconn is the world’s largest contract manufacturer with US$136 billion of revenue in 2016.
Chinese Origin, Global Impact
Chained Finance has the backing of a major online lending platform and a noted supply chain financing company. So there is no doubt about its feasibility in terms of finances and technology talent. The only question is how well they can implement their plans.
It would interesting to see how it would use this blockchain technology breakthrough to influence the direction of finance in the next decade. This company might originate in China but its effect would be felt globally.
Featured picture via Unsplash
