Current State of Blockchain - PDF Free Download

Current State of Blockchain Roberto Mancone Global Head of Disruptive Technologies and Solutions Private and Commercial Ban Payments Forum, London 27 th 28 th February 2018 0

Agenda A B C Impact of Blockchain on banking & initiatives Selection of most relevant initiatives for DB B1 we.trade (Digital Trade Chain) B2 Distributed Ledger Group (DLG / R3) B3 Utility Settlement Coin consortium (USC) Collaboration between DB and H-Farm 1

Anticipated long-term benefits make Blockchain a highly relevant investment opportunity for banks Reasons for a bank to invest in Blockchain are confirmed by industry experts Lower frictional and administrative costs Transparent real-time data would create major operational benefits for users. ( ) More efficient settlement of transactions and processing would occur as everyone sees the same data. Lean process creation High security standards The long-term opportunity for banks is to repoint key operational, risk and finance systems to blockchain based, shared data platforms. Faster transactions Big banks can leverage Blockchain to streamline operations and costs, while improving services and products for clients. 3

To achieve this role, is pursuing Blockchain research and development around six pillars 1 2 3 4 5 6 Market Internal Private Independent Market Infrastructure Innovation Partnerships Market Influence Engagement Consortium Market Structure Standard Utilize for internal efficiency Develop in house business model knowledge Collaborations with market counterpart/client to develop deeper business model understanding Informed investments Assess & undertake selective investments in traditional market infrastructure Consortia focused on core products Active engagement with market leading companies in order to secure involvement in key projects Proactively positioning DB globally and regionally as thought leader Show case DB projects to evidence progress Active engagement in standard setting (incl. interoperability) Proactive stance on streamlining divergent forums PoV Corporate bonds Utility Settlement Coin R3 PCB@ Maersk/IBM Digital Trade Chain press coverage PoV Commercial loan we.trade (Digital Trade Chain) Blockchain Accelerator (H-Farm) 4

has started numerous Blockchain initiatives in the past years Initial Focus Proof of Value Utility Settlement Coin we.trade Incubator & TLE Initial focus on Bitcoin exploring its potential implications for cash products Smart Contracts for a corporate bond Consortium focused on creation of a clearing and settlement coin Consortium focused on creation of an SME trade finance solution Cooperation with The Loan Exchange (TLE) Blockchain factory 1H 2015 Q2 2016 Q4 2016 Q3 2017 2H 2014 2H 2015 Q3 2016 Q1 2017 Q4 2017 Discovery Proof of Value Blockchain & IoT Blockchain Accelerator Focus on the protocol behind Bitcoin i.e. Blockchain. Discovery of greater opportunity to transform the investor and issuer space Smart Contracts for a commercial loan Solutions combining Internet of Things with blockchain technology Industrial blockchain applications in cooperation with large industry partners Initiative by Global Transaction Banking Initiative by Private & Commercial Bank 5

Hence, we are actively engaging in external collaborations to push Blockchain initiatives Further details in section B we.trade (Digital Trade Chain) Consortium of 8 European banks Focus on the development of a Blockchain solution to digitize and improve cross-border trade Solution aimed at European SMEs to increase/enhance their trade transactions Distributed Ledger Group (DLG / R3) Consortium of 100+ members driving member since 09/2015 R3 focuses on developing and executing Corda, a distributed ledger platform specifically for financial services Corda v1 released in Oct 2017 The Loan Exchange cooperation stablished in Q4/2017 Utility Settlement Coin consortium (USC) Consortium of 4 banks, NEX Group plc, and the start-up Clearmatics Focus on an asset-backed digital cash instrument implemented on DLT for use within global, institutional financial markets actively engaged to assess potential market structure changes (policies, economics) 6

DB is exploring Blockchain and IoT solution to solve some of the most relevant challenges in trade finance IoT and blockchain supported value chain in trade finance Can be supported by Blockchain solutions Real-time capturing of trade data Letter of credit Shipping arranged One online platform Real-time monitoring Real-time verification and digital submission Smart contract auto filled Can be supported by Blockchain solutions Documentation component IoT component Documentation component Current main challenges in trade finance revolve around document handling These challenges arise from the high number of participants, no standardization & legal requirements The cases where IoT monitoring could add significant value are: - Low cost monitoring (RFID) of high volume freight - High tech monitoring of expensive and sensitive freight (e.g. medicine) The cases where blockchain could add significant value are: - Smart contracts for automated settlement - All other documentation aspects 8

joined a consortium of nine European banks to provide a Digital Trade Chain solution: we.trade Partnership to provide Blockchain solution for European companies in cross-border trade we.trade (Digital Trade Chain) is a Blockchain based digital platform for managing and tracking domestic and crossborder Open Account trade transactions Scope: Initiate transactions on paperless and secure basis, track transaction at each stage of the transaction lifecycle, through to point of settlement/payment Go-to-market in Belgium, France, Germany, Italy, the Netherlands, the Nordics, Spain and the UK is planned for Q1/2018 Expansion to other countries, banks and additional service providers planned for the future platform will generate revenues through fees from newly onboarded banks 9

With our vision of the global platform for trade finance we already created significant awareness in the market Global platform for trade and finance enables European companies to increase/ enhance trade transactions enables automated settlement via smart contracts using blockchain technology aims at corporates of different sizes, with diverse product offerings, and across multiple industries acts as standalone product that needs no integration into legacy systems Source: Forbes, coindesk, finextra, IT Finanzmagazin, Global Trade Review, Banking Technology 10

2017: The Vision Digital Trade Chain Marketplace where companies can trade with more trust

AAAccomplishments 1 Building the platform 2 Governance 150 people involved 580 conference calls 120 meetings & workshop in 7 countries Agile methodology with 12 sprints and 1100 story points already developed Legal entity setup ready Project governance completed Shareholder structure agreed Corporate governance defined 3 Joint Venture Company Solution development Implementation management Platform licensing Market launch 4 Market Brand launched Management established Go to market strategy agreed Projects defined Clients identified 12 12

After the Go-Live in early 2018, we plan to expand the bank and client network likely beyond Europe Constant onboarding of client banks which generates additional fees for platform 13

Services for Companies One single platform: enables transparency and constant follow-up at each stage of the lifecycle Verified customers: buyer and seller have been verified by their respective bank Access to financial services: unique customer experience and more possibilities for trade Legal framework: increased security 1 Login via Bank access 2 Draw-up contract Transparency Follow-up 1 Login via Bank access Seller Belgian Beer Brewer John 4 Request Bank Service (Optional) 5 Track & Trace Payment Trust we.trade Access to Finance 3 Receive contract, check and confirm 4 Request Bank Service (Optional) 5 Track & Trace Shipping Buyer French drink distributor Boisson Seller s Bank Payment Buyer s Bank Clients register on platform and are validated and approved by their respective bank only clients who are already bank clients and went through KYC process can participate Payments will be executed by the banks upon smart contract instructions negotiated amongst the clients, therefore no payment executed through the platform 14 14

Smart Contracts: Automated Settlements Innovation how it works The key innovation in the we.trade platform is its use of Smart Contracts. Smart contracts may be defined as: the use of code to articulate, verify, and enforce an agreement between parties. A smart legal contract 1 Automated settlement means that the smart contract determines that conditions of the trade have been met and will then send the payment instruction to Buyer s Bank for execution. The Buyer s Bank will make the payment through its existing systems. Customer Benefits Controls - Increased controls around the process so that if the fulfilment is met, the payment will not be blocked by a third party. Automation - Increasing speed and reliability in the workflows across both banks users and SME customers. Reduced Intermediaries - Use of blockchain cuts out the middleman so the process requires less trust and fewer steps. Payment conditions: During the registration of a trade transaction, Buyer and Seller agree that payment will be initiated after reaching the agreed conditions Buyer and Seller can select a or b or c with d or e optional: a) Trade Agreed by Buyer and Seller (prepayment) b) Invoice data uploaded by seller c) Acceptance of invoice by buyer d) Against confirmation of delivery of goods by transporter. e) Against confirmation of delivery of goods by buyer or seller (cfr incoterm) And invoice will be paid in full.. days after settlement conditions met/ after invoice date or else on a fixed date. 1. https://www.coindesk.com/making-sense-smart-contracts/ 15 15

The Distributed Ledger Group aims to execute use cases based on distributed ledger technology platform Corda launched Distributed Ledger Group Mission Defining and executing use cases suggested by the consortium members Realizing the benefits of distributed ledger technology in financial markets What it is The FinTech R3 coordinates the Distributed Ledger Group R3 has built an open and modular shared ledger platform to allow financial services firms to access these efficiencies in a flexible and low cost manner ( Corda ) Corda is designed to record, manage and automate legal agreements & Over 100+ consortium members from the financial industry 17

is currently exploring the concept of a smart loan exchange with a partner company and R3 Partnership to validate set-up of a smart loan exchange The Proof of Concept (PoC) will explore the feasibility of setting up a platform for originators and investors to exchange smart loans The platform will be developed based on Corda technology Intention: Allow loan originators to transform loans into smart loans that can be exchanged in a virtual exchange. Providing investors with the opportunity for a more efficient exchange of loans. 18

USC is a digital cash equivalent for eliminating the need to manage financial transactions through central banks USC as leg for international transactions Utility Settlement Coin is an asset-backed digital cash instrument based on distributed ledger technology and traded via special payment system developed by USC consortium USC is free of credit and counterparty risk, available for all major currencies, and convertible at parity with a bank deposit Equipped with properties of Central Bank money, USC is intended to pioneer the Central Bank Digital Currencies (CBDC) field will benefit participants in financial markets Reduced systemic risk with higher resiliency and efficiency in the market Payment paths point to point without intermediaries (e.g. Central Banks) and step-by-step transactions Better interoperability, also with third-party service providers Lower capital and transaction charges USC Consortium 20

Co-operating with H-Farm, we support five promising start-ups in our recently launched blockchain business solutions accelerator Program offer Five start-ups selected through extensive screening process and competitive selection day 4 month acceleration & growth process Advisory sessions, lectures & resources around start-up development and blockchain Mentoring by and industry partners Start-ups stay on H-Farm campus: accommodation, working space, mentoring, etc. Conditions Seed Investment 20K (+ 80k Services) H-FARM option to convert the Program Value into 3-6% equity based within a timeframe of 3 years possibility to pass on 50% to DB SELECTED START-UPS Timeline 4-months period DEC JAN FEB MAR APR 2018 22

Private & Commercial Bank Thank You! Do you have questions? Roberto Mancone, Managing Director Global Head of Disruptive Technologies and Solutions Payments Forum, London 27 th 28 th February 2018