The Indian Factoring Exchanges – A.TREDs, RXIL and M1xchange – have launched a blockchain-based networking platform which aims to prevent financial frauds and double invoicing issues.
Based on hyperledger fabric, the production system provides a common platform not controlled by any one financial institution to securely and confidentially share information which reduces fraud around receivables financing.
Commenting on the launch Kalyan Basu, MD and CEO of A.TReDS stated, “Our clients are particularly sensitive about their sourcing inputs and we absolutely could not broadcast any of their private information to a shared network. This technology however enables us to work together with the other exchanges to achieve shared goals without sharing a specific data. I look forward to the day when other players in the financial services industry also appreciate the value addition in terms of preventing frauds related to bill discounting and become a part of this system.”
Interestingly, the platform which has been designed and implemented by New York-based MonetaGo, does not involve any use of cryptocurrencies.
The Reserve Bank of India has licensed three entities to provide a more efficient venue to do this: RXIL, A.TReDS, and M1xhange. While A.TREDS is a joint venture of Axis Bank and mjunction services, Receivables Exchange of India Ltd (RXIL) is a joint venture promoted by the National Stock Exchange of India Limited (NSE), a leading stock exchange of India and Small Industries Development Bank of India (SIDBI), the apex financial institution for promotion and financing of the MSMEs in India.
The M1’s Trade Receivables Discounting System (TReDS) is an online exchange being set up under the approval of Reserve Bank of India (RBI) to facilitate discounting of invoices and bills of exchange on a PAN India basis.
The factoring exchanges provide an apt platform for trade receivables and the bill of exchanges of Micro, Small and Medium Enterprises (MSMEs). In case of trade receivables, the cash realisation comes at a future date.
The exchanges, thus provide competitive marketplaces for small businesses to obtain the best financing possible. The platforms count some of the biggest Indian banks and a number of foreign banks as funding sources and enable the discounting of invoices from corporate organisations, government departments and public sector undertakings.
Speaking on the commencement of the services, Kashinath Katakdhond, MD and CEO, RXIL said, “With the implementation of the MonetaGo blockchain solution, we have a tool for mitigating systemic risk especially in trade receivable discounting. This is a simple and low-cost technology innovation which helps us mitigate risks arising from multiple financing of the same bills across the platforms in addition to our existing risk management processes which provides a clear benefit. The real benefit will actually come when other financiers such as banks, NBFCs and others join MonetaGo’s platform.”
As per MonetaGo, this application of blockchain technology, which avoids tokens or cryptocurrencies for both regulatory and cost forecasting reasons, has the potential to drastically reduce frauds related to invoice financing across India and in other regions where it would be adopted. Importantly, it also provides the opportunity for the participants to build additional functionality on the new network.
Amid revolutionary reforms such as the GST, Aadhaar implementation and digitisation of services, the banking sector has also recently witnessed the country’s largest banking scam ever, posing some serious questions across the stakeholders.
According to Jesse Chenard, CEO and Founder of MonetaGo, with blockchain adoption such frauds could be prevented. In an interview, he averred that the very architecture of blockchain results in networks which are tamper evident so that any attempted hack of the system is easily spotted. In addition, by having multiple participants on a network, the data itself becomes immutable.
On the blockchain network developed by MonetaGo, he said, “After several months of working together and testing, the solution was taken into production. This is a significant milestone for blockchain technology and this is only the beginning.”
As by implementing a common blockchain platform, the exchanges eliminate instances of double financing – leading to better rates across the board – without sharing specific elements of any invoice or client, for banks and other fintech organisations dealing with a huge number of parties across the world, blockchain can be the next big platform for recording and processing each and every transaction in real time.
Led by the SBI, a community of 27 banks has already joined hands with a Pune-based blockchain startup to explore and build blockchain solutions for banking needs. Some of which have already been implemented.