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Ping An, the Chinese insurance giant that created the blockchain eTradeFinance, is changing the platform to give its 12 participating banks more control over customer relationships.
Frank Lu, head of the blockchain division of OneConnect, a fintech arm of PingAn and an eTradeFinance architect, told CoinDesk that his team is reviewing the way companies send their data for commercial financing from the network. Instead of going to a central portal, they will have to register through individual banks.
First seen in 2017 as proof-of-concept by Hong Kong's Monetary Administration (HKMA) and officially launched in October 2018, eTradeFinance aims to bring efficiency to the Hong Kong commercial finance market for small and medium-sized enterprises (SMEs) preventing fraud.
The main banks participating in the blockchain network include HSBC, Standard Chartered, BNP Paribas in Hong Kong, Bank of East Asia and the Hong Kong subsidiaries of all four state-owned commercial banks in China.
The idea is to allow a participating bank to verify a customer's credentials based on transaction history and purchase order status so that the PMI can borrow money, committing future payments as collateral.
By entering this data on a distributed network, it is expected that the project will make it easier for a client to get additional funding, but at the same time prevent them from borrowing a total amount from multiple banks that exceeds their credit lines.
Currently, SMEs register for the service through a portal operated by Hong Kong Interbank Clearing Limited (HKICL), a HKMA-established subsidiary specifically for the initiative. So they choose the bank they want to work with.
But this approach will soon be revised, Lu said, in an attempt to give banks more control over where corporations might choose to go.
"Customers have a different goal – they would like more funding options," he said, adding:
"But at the same time, big banks do not want to become a selection button in a drop-down menu."
Lu admitted that this may not be in the best interest of SMEs, but he said at the end of the day, "this is a game".
"In my opinion, customers need money, and banks are the ones who hold this money, so in the end it's a seller's market, but the existing model made it easier to launch the platform and run it constantly," he said . "The next step is migration to get rid of the HKMA portal so that banks feel more comfortable introducing their customers into the network [via their own platforms]".
Josh Kroeker, HSBC's blockchain leader for global commercial banking, told CoinDesk that in the future it will be convenient if customers can access eTradeConnect through their own platforms instead of "a stand-alone portal".
A HKMA spokesperson stated in an e-mail response that while the change is still in the planning stage, the agency expects the bank's customers to connect to eTradeConnect through the banking e-banking systems, open APIs or web user interfaces.
"The only way"
Similar commercial concerns among banks are the reason why Ping An built eTradeFinance using zero-knowledge evidence, a technology that allows someone to prove that they have the knowledge of a secret without revealing the secret itself.
After all, just as banks are naturally reluctant to let their clients go across the street, they are equally cautious about revealing their clients' information to their competitors on a shared ledger.
"No bank would like to share information entirely, which is why there is always a lot of talk about blockchain, but very few in practice," said Lu, who joined Ping An in July 2016 from IBM , where he was one of the creators of the Hyperledger Fabric blockchain.
Echoing this point, HSBC's Kroeker said that "data privacy / encryption is a key consideration during any commercial finance platform project, since banks and corporations do not want their competitive business data to be shared unnecessarily ".
He added: "Technologies like the zero knowledge test are very tempting because they allow these validations to occur without sharing commercially sensitive data."
In fact, Lu argues that zero-knowledge demonstrations are the only way to make the implementation of any blockchain trading platform possible.
"My thinking and vision of the corporate blockchain was not entirely clear when I was at IBM, but I now believe that full encryption is the only way out for the consortium blockchains", he said.
This is because, according to Lu, the model balances the objectives of using a distributed ledger to increase efficiency by letting banks maintain their business secrets.
When a customer sends information to a bank, the bank has absolute control, Lu said, but when that information is sent for cross-checking, it's all encrypted and no other party will be able to see the information at all. 39; internal.
For example, he explained, if a customer has a purchase order of $ 10 million and goes to, for example, Standard Chartered to borrow $ 5 million, the bank will verify the information and then grant the request.
Now, if this hypothetical customer moves to HSBC to borrow another $ 7 million, Standard Chartered will not share the exact customer information with HSBC. Instead, HSBC will execute the zero-knowledge test algorithm to obtain a simple "true" or "false" result.
"In this case, the result will be" fake "because the total amount already exceeds the total warranty," Lu said, adding that it's all that HSBC needs to know.
However, due to the zero-proof knowledge algorithm, neither Ping An nor the banks will have a clear idea of the size or volume of transactions managed by others on the network.
"If you ask me about the volume of transactions, I honestly do not know." Ping An is not able to [would] I do not dare access this information, "Lu said." This is because each node encrypts the information with its own private keys. "
The more we are, the better
With eTradeFinance now launched and managing transactions in real time, another key question for the network is how many customers will choose and how big these customers will be.
To help create a network effect, HKMA today announced a plan to link eTradeFinance with We.trade, the European commercial finance blockchain built by IBM on Hyperledger Fabric, which was released in July.
Both Kroeker and Lu have said that the work of technical integration is progressing steadily but did not want to share further details on the timeline.
However, technology could be the last thing Lu feels worried about.
Rather, to take full advantage of blockchain cross-border trade platforms, Lu said the key is to integrate customers on a scale.
"First of all, a single financial product must exist in both networks, and customers on both platforms must be big enough," he said, adding:
"Now technology is not really a challenge, but for a buyer in Europe, it's better to have a big partner based in Asia, otherwise it's better to find a seller in the same region."
However, Kroeker said that HSBC is taking time to make sure that the technology and the product can function without problems before marketing the solution.
He added that in recent weeks HSBC has completed two real-time transactions for Hong Kong customers, one for Pricerite, and another with the global manufacturer Mainetti.
"The platform is definitely used, but in terms of broad commercialization, we are distributing this to 100,000 customers right now, not yet." Kroeker said. "This is something we want to make sure we take feedback from these business customers into account and use them to demonstrate this solution."
Ping An's move into the blockchain is also an example of how China's major insurer is making efforts to sell fintech services to foreign institutions.
Founded in the 80s as one of China's leading private and public sector institutions, Ping An has become the largest insurance company in the world, according to Forbes 2018 Global list 2000, followed by AXA and Allianz.
While Chinese Internet companies such as Alibaba and JD.com have moved to financial services with insurance and financial offers, Ping An has launched OneConnect, with the goal of selling technology services, including blockchain infrastructure.
A relationship from the Financial Times this year he said that the subsidiary fintech was also looking at an initial public offering in Hong Kong to raise $ 2 billion.
Lu said that OneConnect is planning to launch a similar blockchain trade financing platform in mainland China for a consortium of small and medium-sized banks at the start of next year. He concluded:
"Using OneConnect technology, we want to create our ecosystem."
eTradeConnect launches courtesy of the image at HKFintech Week
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