How Blockchain Empowers “Chain” Finance

As an infrastructure technology supporting the digital economy, blockchain technology, with its technical features such as distributed shared ledger, open and transparent, tamper-proof and traceable, fits well with the characteristics of chain finance such as multiple trust subjects, multi-party collaboration and high-frequency transactions.

How Blockchain Empowers "Chain" Finance

In order to meet the financing needs of the real economy, the state has introduced many supporting policies in recent years, and commercial banks have continued to innovate their product and service models, and actively explored the development mode of supply chain finance, especially for the financing needs of small and micro enterprises, and continuously innovated the guarantee methods of intellectual property rights, equity, accounts receivable, etc., which have achieved very good results.

Authoritative department statistics show that by the end of 2020, the balance of renewed loans for small and micro enterprises reached 2.25 trillion yuan, up 56.41% year-on-year. While seeing the above achievements, we also note that the problem of difficult and expensive financing for some SMEs is still prominent, making it saddening to see some enterprises with good development prospects in the industry chain miss out on good opportunities.

With the existing players and new entrants deeply penetrating the market, the future supply chain finance will usher in a period of rapid development, and the relevant media expects that the market size is expected to reach 19.19 trillion yuan in 2022.

Under the situation of expanding market scale, how to use new technology to identify the advantages and disadvantages of enterprises in the supply chain and give accurate credit support, and provide systematic financial solutions for key enterprises in the supply chain and upstream and downstream enterprises has become a prominent and realistic issue.

Problems in the development of “chain” finance
“Chain” finance is a financial institution that provides financial services based on the trade behavior between core enterprises and upstream and downstream enterprises in the supply chain, which can cover the financing needs of procurement, production, inventory and sales in each stage of the supply chain.

However, in the process of business development, many risks have been exposed, including trade distortion, buyer’s deferred payment, commercial disputes, no collateral, and delayed delivery. Especially between the core enterprises in the chain and the upstream and downstream enterprises, there are ways to extend the billing period and other ways to ease their respective capital pressure, and if a crisis occurs in one enterprise in the chain, it will lead to problems in the whole supply chain.

For example, as a bank, due to the need for capital security, banks only provide financing services to the core enterprises of the supply chain, but cannot meet the financing needs of hundreds of small and medium-sized enterprises in the supply chain, so the problem of difficult and expensive financing has not been well solved.

In addition, it is difficult to integrate the information of the whole chain of supply chain, the information of upstream and downstream enterprises is fragmented, and the information transparency is not high, which will lead to the generation of information silos, together with the difficulty of trade background authenticity audit and other problems are the key factors restricting the development of supply chain finance.

In the face of the above problems, blockchain technology, as an infrastructure technology supporting the digital economy, with its distributed shared ledger, open and transparent, tamper-proof, traceable and other technical characteristics, fits well with the characteristics of chain finance such as multiple trust subjects, multi-party collaboration and high-frequency transactions, and has great potential in better linking capital needs and further solving the difficulties and high costs of financing for SMEs.

How does blockchain empower “chain” finance?
The emergence of blockchain technology can effectively realize the trust transfer between supply chain enterprises and help enterprises to better revitalize their assets, which is significant to enhance the efficiency of the whole chain finance.

Firstly, it helps to make the information of chain finance transparent and prevent information silos.

Under the blockchain technology architecture, through data on-chain and off-chain hierarchical encrypted storage, data accuracy and non-tamperability can be ensured under the premise of data security and privacy, realizing more efficient and autonomous flow of data between different applications, the system can constrain the behavior of participants in chain finance, integrate relevant transaction data, and form online complete records of contracts, payments, documents, etc. to confirm the trade It breaks the problem of information silo on the chain.

At the same time, the blockchain-enabled chain finance system can form an information architecture with product information flow as the main body and commercial flow, logistics and capital flow as the common support, which is significant in creating a modern supply chain finance system and better promoting financial services to the real economy.

Secondly, it improves the credit transmission efficiency of chain finance and reduces financing cost.

In the traditional financing process, the core enterprise endorsement credit will continue to weaken with the extension of the chain, and the tail-end SMEs often cannot enjoy the credit radiation of the core enterprises in the chain. The consensus mechanism design of blockchain, the data on the chain is tamper-proof, traceable and can carry value, which can ensure that the real debt claims are mapped onto the chain and authentically transmitted based on legal and compliance requirements, and the core enterprise endorsement utility can be transmitted along the credible financing chain, realizing credit transmission, penetration and extension, effectively improving the efficiency of financial credit transmission, and making the traditional process increased due to the trust crisis. The cumbersome verification procedures in the traditional process due to the crisis of trust can be significantly reduced, which can reduce the phenomenon of financial institutions shying away from loans and effectively reduce the financing cost of the chain enterprises.

Finally, it can prevent the risk of compliance in chain finance and improve the level of supervision.

The value of finance is to serve the allocation of funds across cycles, and blockchain smart contract technology effectively carries this scenario. The smart contract technology of blockchain can build the trade contract on the blockchain for penetrating automatic disbursement, which can not only ensure the smooth execution of the contract in the environment of lack of third-party supervision, but also eliminate the risk of default that may be brought by manual operation, ensure the closed flow of funds in the core enterprises of the industrial chain and upstream and downstream enterprises, accurately drip-feed to each node of the chain, and reduce the loan risk factor of financial institutions. At the same time, the chain encryption and traceability of supply chain financial information ensure the authenticity and accuracy of data, allowing regulators to analyze the performance and capital flow of specific enterprises in the chain for early warning and research and judgment, reducing the cost of supervision and improving the level of supervision.

In September 2020, the People’s Bank and eight other departments jointly issued the Opinions on Standardizing the Development of Supply Chain Finance Supporting the Stable Cycle and Optimization and Upgrading of the Supply Chain Industry Chain, which clearly put forward that supply chain finance should adhere to improving the operational efficiency of the supply chain industry chain, reducing enterprise costs, serving the integrity and stability of the supply chain industry chain, supporting the optimization and upgrading of the industry chain and the national strategic layout, steadily promoting the supply chain Financial regulation, development and innovation, improve the overall financial services of the industry chain, and explore the level of online and digital supply chain financing settlement.

Empowered by technology, the new technology represented by blockchain constantly empowers the financial service model, transforming the production behavior, operation risk, industrial data, enterprise credit and industry characteristics of industrial entities into visible, readable and trustworthy, assessable, verifiable and flowable information on financial attributes, helping banks and other financial institutions to better read industries, understand enterprises, assess risks, more accurately identify the real capital needs of enterprises, and Intelligent monitoring of financial risks makes services more accurate and efficient.

As a one-stop solution provider of blockchain technology, Wangchain Technology has been developing and accumulating in the field of chain finance. The supply chain financing service platform, note financing service platform and cloud factoring financing service platform we built can make all the real data between financial institutions, industry chain core enterprises, chain enterprises, suppliers and other supply chain participants on the chain, release and transmit the credit of core enterprises, reduce the cost of industry chain It can release and transmit the credit of core enterprises, reduce the cost of capital settlement and financing cost, and enhance the liquidity of capital and assets. At the same time, it continues to innovate clearing and settlement channels, effectively improving clearing and settlement efficiency, better linking capital demand, and promoting the benign development of the whole supply chain finance ecology.

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