The Dutch bank has made significant strides in realising its blockchain agenda, as its distributed ledger technologies near commercial readiness.
In recent months, the Dutch bank Rabobank has stepped up its blockchain activities. Having executed several proof-of-concept initiatives, the bank is moving steadily towards full adoption of the technology.
Most notably, it is part of SWIFT’s blockchain proof-of-concept, which will run until the end of 2017. It is also one of the banks behind we.trade, a blockchain-based trade finance platform due to launch early next year.
“As a leading bank, it is vital for Rabobank to be involved as it continues its commitment to innovation in the sector,” Angelique Slach, chief innovation officer, trade and commodity at Rabobank, told EMEA Finance.
Initially treated with a measure of scepticism, blockchain is now one of the most talked-about topics in the financial services industry. Although banks are still at an early stage of adoption, the vast majority are taking the topic seriously and working out ways to get on board.
According to a KPMG report, The Pulse of Fintech Q2 2017, blockchain has become a catalytic force in fintech innovation as investments start to deliver value. In 2016, global venture investment in blockchain companies stood at $367m, surging from just $13m three years earlier.
Rabobank has been investigating the technology since 2014, with an early adopter’s eye for its potential.
“Blockchain technology allows companies to develop a common administration along their value chain, to optimise the physical flow of products and support,” says Slach. “Advantages include a reduction in complexity and fraud sensitivity, speed in lead times and efficiency. We believe blockchain can enable an 80% efficiency gain and 50% cost reduction across the entire value chain once fully operational.”
In simple terms, blockchain gives multiple parties access to a shared digital ledger, which records the transactions between them. This ledger is highly secure and cannot be altered.
“It creates a formal register to tag and monitor products in different points of the supply chain by confirming receipts and automatically registering payments. It also speeds up operations and reduces transaction fees,” says Slach.
Within banking specifically, the technology has been touted as having a wide range of possible use cases. These include verification of customer identity; managing the lifecycle of syndicated loans; streamlining clearing and settlement and digitising trade finance.
At Rabobank, most of the early exploration efforts have been focused on cross-border payments and micropayments. In 2016, the bank teamed up with Nexuslab, a blockchain accelerator, to develop a European-based venture. It also partnered with D+H to demonstrate near real-time execution of international payments.
The SWIFT proof of concept, which was launched in February 2017, is geared towards a similar purpose. It seeks to find out whether blockchain can help banks reconcile their nostro databases in real time, optimising their global liquidity. Rabobank is part of the validation group testing the application.
“The proof of concept aims to help banks overcome significant challenges in monitoring and managing their international nostro accounts, which are crucial to the facilitation of cross-border payments,” explains Slach.
The we.trade initiative, meanwhile, is being developed in conjunction with six other banks and IBM (an eighth bank, Banco Santander, also recently joined the consortium). It aims to make domestic and cross-border commerce easier for European companies by harnessing the power of distributed ledger technology. Test clients will be able to use the platform from February onwards, with full commercialisation expected in Q2 2018.
“The platform will be accessible from any connected device and will simplify trade finance processes for companies by addressing the challenge of managing, tracking and securing transactions,” says Slach.
Rabobank is also looking to use blockchain within its agricultural lending activities. On October 16th, it announced a new programme, Kickstart Food, in partnership with UN Environment. This $1bn initiative aims to accelerate the transition to a sustainable food supply, scaling up Rabobank’s support for clients and partners in this sector. Slach says blockchain will play a key part in the programme, helping bring parties together and connecting an entire value chain.
“As the food and agriculture value chain becomes increasingly complex, we see blockchain as a way to connect farmers, warehouses, traders, wholesale processors and ultimately the consumer,” she explains. “It marries in with our wider Rabobank strategy of ‘growing a better world’.”
With various other use cases being investigated, there will undoubtedly be more to come. Accenture has predicted that blockchain will enter a growth phase between 2018 and 2024, before reaching maturity in 2025, when it becomes integral to the capital markets ecosystem.
Dutch banks, including Rabobank, will be well placed to reap the benefits. Compared to others in Europe, they have reached a high level of blockchain readiness – not altogether surprising for a country ranked third on the Global Innovation Index. The Netherlands has one of the best-ranking digital economies in the world, a vibrant fintech scene and a government-driven National Blockchain Coalition.
Slach feels that blockchain could prove hugely transformative for Rabobank, with implications stretching beyond faster transactions. As she explains: “Combined with the emergence of new technology and big data, it paves the way for new practices and business models.”
This article appears in EMEA Finance