As Asia’s digital transformation gathers momentum, the Hong Kong Monetary Authority recently joined forces with banks to launch eTradeConnect, a large-scale blockchain-based trade finance platform.
The Hong Kong Monetary Authority’s (HKMA) Fintech Facilitation Office (FFO) takes a market driven approach to digital transformation projects, as it endeavours to encourage innovation involving cross-border transactions – a vital move for the long-term success of both the Belt and Road Initiative and Guangdong-Hong Kong-Macao Greater Bay Area development.
One of its recent successes combines trade finance and blockchain with world-first innovation.
Banks procedures are complex when it comes to dealing with trade matters and transactions, so sharing information within and between banks is challenging. Linking Asian banks to counterparts in Europe adds even more complexity. Now the HKMA, as part of its fintech innovation, has facilitated the development of a blockchain-based platform with the ability to efficiently deliver trade finance across borders.
The HKMA initially began working with seven banks with bases in Hong Kong (Australia and New Zealand Banking Group, Bank of China, Bank of East Asia, DBS Bank, Hang Seng Bank, The Hongkong and Shanghai Banking Corporation and Standard Chartered Bank), to see if a blockchain platform would help share information among banks.
By digitialising the trade process, the HKMA and banks aimed to increase efficiency in documentation, reduce labour and handling costs and eliminate human errors created during the traditional processing method.
Bolstered by the projects’ early proof of concept success, Agricultural Bank of China, Bank of Communications, BNP Paribas, Industrial and Commercial Bank of China and Shanghai Commercial Bank also joined the project, bringing the consortium to 12 member banks.
Trade facilitation
In late October 2018, the HKMA officially announced the launch of eTradeConnect, a blockchain-based trade finance platform and Hong Kong’s first large-scale multi-bank blockchain project to increase banking digitalisation and reduce fraud. At the same time, the Hong Kong Trade Finance Platform Company Limited (HKTFPCL), the operator of eTradeConnect, signed a memorandum of understanding with Europe-based platform we.trade to trial connecting the two entities, effectively forging a direct link between Asian and European trade.
“It’s a very good time to connect as we share very similar ambitions. we.trade is the biggest consortium of blockchain trade finance in Europe (supported by 14 banks) and our platform serves similar products. We are the biggest consortium in Hong Kong and they are the biggest in Europe, so if we work together, we can connect more customers and sellers from both sides while learning from each other, which will enhance our platform’s capabilities,” says the FFO’s Chief Fintech Officer Nelson Chow.
Nelson Chow, Hong Kong Monetary Authority
Roberto Mancone, Chief Operating Officer of we.trade, regards this strategic partnership as a world first: “we.trade and eTradeConnect are ‘world first’ ready – platforms already in production that can license and onboard clients and facilitate cross-continent trades.” He points out that we.trade is already providing cross-border trade in Europe and, since it is no longer in proof of concept stage or in a testing environment, is ready to be distributed via banks to commercial clients.
Mancone says we.trade decided to partner with HKMA because of its reputation in the financial environment and its support for eTradeConnect. “We believed it was a very good fit to show to the world how two investments, while maintaining their independent path, can foster the creation of a ‘network of networks’. It allows two platforms to become available to commercial clients in 14 European countries and commercial clients in Hong Kong, and to have a seamless trade journey through their respective innovative solutions offered by their banks, we.trade and eTradeConnect,” Mancone says.
Chow says the blockchain platforms also give clients greater security as buyers and sellers using this platform are KYC (Know Your Customer) verified by banks.
While not directly linked to the Belt and Road, Chow says eTradeConnect has the potential to benefit those who trade along its route. “Hopefully, this platform will benefit small- and medium-sized enterprises (SMEs) along the Belt and Road. By reducing risks for these banks, hopefully, they may be more willing to provide finance to SMEs, to encourage liquidity and trade – although it’s not our primary objective.”
Fintech hub
Projects like eTradeConnect are just one of a number of fintech projects undertaken by the HKMA. Chow has also been responsible for promoting the development of fintech ecosystems in Hong Kong in addition to encouraging the city’s further development as Asia’s premier fintech hub, since 2016.
Other initiatives involving the HKMA include talent development for students at learning institutions and collaboration with both Cyberport and the Hong Kong Science and Technology Parks Corporation. The HKMA and the Monetary Authority of Singapore are jointly building a global trade connectivity network, using cross-border digital ledger technology, to connect trade platforms.
