More Banks Join IBM's Blockchain Trade-Finance Project

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While International Business Machines (NYSE: IBM) is not typically viewed as a tech company at the bleeding edge, blockchain is one area where Big Blue is leading the way. A recent survey of company founders, executives, managers, and IT leaders pegged IBM as the overwhelming leader, a result that bodes well for IBM's nascent blockchain business.

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IBM's blockchain efforts received another boost on Wednesday, when the company announced that four additional banks were joining its ongoing initiative, started in 2016 along with UBS, to build a global blockchain-based trade finance platform. This appears separate from a project announced earlier this year to build a trade-finance platform for a consortium of seven major European banks. Both projects aim to lower costs and slash inefficiency in trade transactions, an application that seems well suited for blockchain.

Jumping on the Batavia bandwagon

Bank of Montreal, CaixaBank, Commerzbank, and Erste Group are joining IBM and UBS, collaborating to bring the blockchain-based trade finance platform, called Batavia, to life. The idea behind the platform is to simplify a process that is typically anything but simple. IBM described the current inefficient trade transaction process in the press release announcing the news:

Traditionally, trading partners, including buyers, sellers, their banks, transporters, inspectors and regulators have relied on large volumes of paper based documentation to securely conduct trade transactions. This process can take up to weeks, incurring costs, making data vulnerable to errors due to repeated manual reprocessing and tying up capital. Delays and lack of transparency in trade can make it difficult for companies to access financing, limiting their ability to trade across borders and grow revenues.

Batavia allows for the elimination of this mountain of paperwork. Blockchain, which is essentially a distributed ledger of transactions, gives each party a full view of the process. User input and sensor data will update the status of the transaction as the shipment is makes its way to its destination. Batavia will release payments along the way as steps in the process are completed.

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IBM summed up the promise of the platform: "When all participants in a transaction can access a shared version of the truth, they can interact with greater trust, building larger and more distributed networks, and in turn, growing revenue."

IBM plans to begin pilot transactions in early 2018 to test the Batavia platform. It will run on IBM's Blockchain Platform, which also hosts other IBM blockchain initiatives.

A long-term bet on a new technology

Blockchain is a young technology, but it has the potential to make a wide variety of processes more efficient. There's a lot of hype around blockchain, particularly because it's the technology that underlies cryptocurrencies like Bitcoin. Blockchain may end up being a revolutionary technology -- or not. It's just too early to tell.

Either way, IBM is making blockchain a key component of its transformation. The company is working on other major blockchain projects, including a deal with major food companies aimed at using blockchain to improve the global food supply chain by tracking down the source of contaminated food quickly. In total, IBM has worked with more than 400 clients designing and building blockchain-based solutions.

It may be years before IBM's blockchain business begins generating a meaningful amount of revenue, and it may never happen if these major projects don't produce results. But if blockchain lives up to even a fraction of the hype, IBM will be at the center of a major technological shift.

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Timothy Green owns shares of IBM. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.