OneConnect, a member company of Ping An Group (the world’s largest insurance group by market cap) aims to make multi-party information sharing a reality with blockchain. It hopes to break information barriers and supply the government, financial institutions and foreign trade partners with a database of credible background information and credit histories of SMEs – with a focus on the automotive, agricultural and healthcare sectors. The result should be qualified firms finding it simpler to obtain trade financing.
“To date, OneConnect has developed supply chain finance services targeting ten industries, with a focus on the automotive, agricultural and healthcare sectors,” said Fei Yiming, CEO of OneConnect’s Enterprise Financial Service Division. Fei indicated that the characteristics that define a supply chain varies across different verticals. As a result, precision-driven supply chain finance solutions is required to address a host of existing pain points associated with differentiation.
Supply chain and trade finance
Supply chain finance refers to the financial services provided (usually) by banks to aid:
- capital flows
- logistics (especially for small and medium-sized enterprises (SMEs)
- risk control.
By including the risk of a single enterprise into a risk-base spread across multiple firms which is then spread across all the links in a supply chain, there is a minimising of the overall risk – assisted by access to a broad portfolio information. When this happens, a financial reviewer has access to, and is able to evaluate, the performance and credibility of each business applying for trade finance from multiple viewpoints.
To deliver this requires leveraging cutting-edge technologies. These include:
- artificial intelligence
- cloud computing.
OneConnect, led by the Hong Kong Monetary Authority, helped build in 2018 the world’s first blockchain trade financing platform supported by regulators. Serving as an ‘air corridor’ for financial trade, the platform connects international trade hubs in the Guangdong-Hong Kong-Macao Greater Bay Area and facilitates the flow of capital across the Asia Pacific region and the wider world.
The OneConnect connection
OneConnect launched its Eachlink Intelligent Supply Chain Finance Platform in 2018 – as a solution to overcome the drawbacks associated with traditional supply chain finance models, including:
- difficulties in interpreting business information
- tracking transaction information
- provision of financing (specifically to SMEs).
In April 2019, under the aegis of the General Administration of Customs and working with Tianjin Customs, OneConnect introduced China’s first cross-border trade service network using blockchain. With this network, OneConnect aimed to:
- make multi-party information sharing, via blockchain, a reality
- supply government, financial institutions and foreign trade partners with a database of credible background information and credit histories of SMEs.
The blockchain advantage
By taking advantage of blockchain’s traceability, records retention and immutability, large amounts of offline transaction information, which was previously difficult to verify, exists on the blockchain. This ensures that an SME’s information relevant to its supply chain:
- is on record
- has traceability
- shows creditworthiness.
In effect, the blockchain guarantees the authenticity of the furnished information. After that, artificial intelligence achieves intelligent cross-validation of data sources for logistics, warehousing, industry, trade, taxation and other participants on the blockchain. The significance is that OneConnect solves:
- the ‘information asymmetry’ bottleneck between banks and client businesses
- the difficulty of verifying the authenticity of a trade.
This enhances a bank’s ability to:
- control its risks
- reduce risks associated with loans and audit costs.
By combining mobile networks and cloud computing, OneConnect builds a mobile cloud platform, which brings the entire process online 24×7, including:
- credit application
- contract signing
- loan application
- invoice verification.
The result is online lending in seconds which:
- reduces the financing costs for SMEs
- addresses the demand for short-term, frequent and fast-moving financing
- supports the banks offering trade finance.
Automotive and agriculture examples
Taking the automotive industry as an example, a supply chain finance platform using OneConnect helps automotive firms manage their finances. Blockchain:
- enables transparency at multiple levels of the credit status and worthiness of key businesses
- ensures a healthy and smooth operation across the industry supply chain
- enhances the accessibility to the financing sought by firms in that supply chain
- reduces financing costs.
In the world of agriculture, rural financial services are underdeveloped. The majority of those involved are individual farmers who lack financial literacy and credit awareness. OneConnect wishes to:
- place control of capital flow and the trade in agricultural products in the hands of the major agricultural companies, in line with the business model of order-based agriculture
- yet assist individual farmers and large agribusinesses to work hand in hand
- ensure the availability of needed credit facilities while reducing the associated risk.
Enterprise Times: what does this mean:
OneConnect is a different supply chain ‘play’ to that of (say) TradeLens. Whereas TradeLens concentrates on the ‘logistics’ between producer and purchaser, OneConnect focuses on making it easier for those who need trade finance to obtain it – so they can ‘close the business’ which will then need those logistics.
Both approaches share a common aspect – seeking to diminish friction in existing supply chains. Yet their focus is different. TradeLens (and others) want to make it easier to move goods around the world. In contrast OneConnect wishes to remove the inhibitions to trade for SMEs caused by a lack of capital.