Blockchain technology has made significant inroads into commercial banking, with systems entering production in three vital areas: cross-border payments, trade finance and syndicated lending.

That’s a key takeaway from research recently conducted by Celent, which focuses on the viability of present-day use cases and identifies the consortia and technology providers bringing blockchain to commercial banking.

Trade finance is a natural fit for blockchain.

“We’re in the roll-up-the-sleeves [stage], and people are working hard,” Celent senior analyst Alenka Grealish, who authored the report, tells ThirtyK. “The grandiosity has been replaced by diligent work.”

The Golden Triangle

In the report, Grealish argues financial use cases must fulfill three key criteria: value, feasibility and economic viability. Only three current use cases in commercial banking appear to meet all three of these “golden triangle” criteria, she says, but all three have working systems in production.

Blockchain has already simplified cross-border payments for individuals, but commercial enterprises and interbank systems that use “old rails” have strong financial incentives to shift to faster and less-costly blockchain solutions. Ripple, Stellar and IBM Blockchain World Wire all have cross-border systems in production, according to the report.

It’s a given that the speed of cross-border payments improves on the blockchain, but what will be critical for financial institutions is the ability to overlay the data associated with larger transactions, according to Grealish. “If you get a fast payment but you can’t [process] it, it doesn’t matter,” she says.

Trade finance, which provides the loans and funding that make international trade possible, is a natural fit for blockchain because it’s “all about documents, contracts and trigger events,” Grealish says. Smart contracts can automate the execution of many of these pieces as goods progress through the supply chain and are tracked by sensors connected to the internet of things (IoT).

While the we.trade consortium and India Trade Connect both have systems in production, Grealish says it will be difficult to create complete end-to-end solutions because “it becomes exponentially complex as you introduce new parts of the value chain” and navigate the associated regulatory challenges.

Syndicated lending, a practice in which loans are provided by more than one lender, has one major blockchain technology provider, Finastra’s Fusion LenderComm, with a solution in production.

Grealish points to emerging consortia like we.trade as evidence of a “mind shift” in the commercial banking sector. “Historically, collaboration for banks has been one-off partnerships, and here we’re talking about a consortium coming together,” she says. “They’re going to work as well as they can together to build a utility, and then they can differentiate on how they deliver this utility to their customers.”

The ‘Turning Point’

Despite the significant progress to date, the Celent report notes that current production systems still represent relatively small initiatives. It calls the “race to scale production” a “marathon, not a sprint.”

Looking ahead, expect additional consolidation among technology players, Grealish says. She points to the history of earlier payment systems, including ATM networks and credit cards, both of which saw a wide range of competitors eventually consolidate to a small number of providers. “That’s the end game in payments,” she says.

The biggest change is arguably yet to come. Grealish thinks native digital assets, meaning those issued by a central bank, will be the “turning point” for banking on the blockchain. When complex transactions can be made without requiring conversions to fiat currency, “you can keep things on the block,” she says.

Mark Toner
Mark Toner is a Washington, D.C., writer and editor. He has covered business, technology, media, education, and healthcare for a wide range of trade and industry publications.