Technology
Banks Say They Break Fresh Ground With Blockchain Transaction

The technology used to power Bitcoin has formed the basis for a groundbreaking transaction, two banks and a third firm say.
Commonwealth
Bank of Australia and Wells Fargo have carried out what they
said is the first global trade transaction between two
independent banks involving blockchain technology, a sign of how
the banking world is embracing such channels.
Blockchain technology, a virtual distributed ledger of
transactions shared peer-to-peer, can record ownership across a
public network of computers rendered tamper-proof by advanced
cryptography. It is already known as the platform for the
controversial digital currency Bitcoin.
The transaction used a distributed ledger to coordinate a
shipment of cotton on behalf of Brighann Cotton from Texas, US,
to Qingdao, China, according to a statement issued by
Sydney-headquartered Commonwealth Bank of Australia.
The blockchain technology is one of the fintech developments
seen as revolutionising banking and other services where there is
a need for rapid, safe and auditable exchange of information,
whether it be about monetary transactions, legal documents or
other data. There has been a flurry of commentary in the wealth
management space about how blockchain technologies could affect
how the industry operates in the next few years.
The CBA/Wells Fargo/Brighann Cotton transaction involved an
open account trade, which mirrored a traditional letter of
credit, through the use of a private distributed ledger between
the seller (Brighann Cotton US), the buyer (Brighann Cotton
Marketing Australia), and their respective
banks: California-based Wells Fargo and
Commonwealth Bank of Australia.
A physical supply chain trigger was introduced to track the
location of the goods while in transit and to subsequently allow
for the payment to be released from escrow once delivery was
confirmed.
The tracking feature adds a new dimension by providing all
parties involved with greater certainty compared with traditional
open account and trade instruments, such as letters of credit,
Commonwealth Bank of Australia said in a statement.
It also claimed that the use of blockchain technology improves
the level of transparency between the buyer and seller, as well
as creating a higher level of security, while “accomplishing in
minutes what used to take days”.
“This proof of concept demonstrates how companies around the
world could benefit from these emerging technologies,” said
Michael Eidel, executive general manager of Commonwealth Bank’s
cash flow and transaction services.
“We strive to stay at the forefront of disruptive technologies to
understand how they can be used to enable greater efficiencies
and solve the real world challenges our customers face,” he
added.
“The combination of these emerging technologies could eliminate
many inefficiencies currently experienced in international
trade,” said Cameron Austin, general manager of Brighann
Marketing. “The benefits of lower costs and improvements to
security through reduction of errors, risk and time enable a
company to achieve greater efficiency and have more predictable
working capital.”
Chris Lewis, head of international trade services for Wells
Fargo, also recognised the potential of blockchain technology,
but stressed that it could face regulatory scrutiny in
future.
“This marks another step in evaluating technology that, over
time, could support the evolution of trade finance. While
significant regulatory, legal and other concerns remain to be
addressed with the technology, we are committed to engaging with
our partners to explore potential applications within trade
finance,” he said.