BBVA, Banco Bilbao Vizcaya Argentaria signed a multi-million euro corporate loan with a civil engineering company, ACS based on the blockchain technology, earlier this month. In its official statement, BBVA claims that by doing so they will be able to provide an innovative financing model for its corporate clients.
The agreement is essentially of a long-term bilateral corporate loan of €100 million ($117 million).
BBVA, Banco Bilbao Vizcaya Argentaria is a multi-national Spanish banking group and is Spain’s second largest bank. Since 2007, the company has been dedicated to digitize itself, adopting new technologies as they come by, and eventually developing into, as quoted by Francisco González, BBVA’s executive chairman since 2000, a “digital house.” With the boom and the intense hype of the blockchain technology in past couple of years, BBVA has been among the first finance firms to eagerly embrace this technology.
With the blockchain technology, the company will cater for the general financial needs, and hopes to provide its clients with the latest innovations on blockchain. By adopting blockchain, BBVA aims to make contractual processes and procedures more efficient, transparent and traceable.
The blockchain technology is known for establishing new paradigms for transparent and very quick transactions. Its core idea – ledgers (or blocks) which are readable by the public, combined with the clever use of cryptography, is what makes it so dependable and secure. Put in simpler words, any transaction once made on blockchain cannot be edited or changed. Due to its highly reliable process, blockchain is becoming increasingly popular in contractual deals, hence giving rise to the use of smart contracts. The deal signed between BBVA and ASC too is in fact, a smart contract.
The blockchain based loan or the smart contract, works such that it will allow both parties, BBVA and ASC, to independently monitor the different stages of the contract at any desirable period of time, as well as monitor its conditions. The digitization of the negotiation process would also mean that the managerial time would reduce “from days to hours.”
Moreover, the smart contracted loan will also prove to be cost effective for both the companies. This is so because all too often, supply chains in corporate finance are hampered by paper-based systems, where forms have to pass through numerous channels for approval, which increases exposure to loss and fraud. The blockchain nullifies this by providing a secure and accessible digital version to both the parties on the chain and automates tasks and payment. Hence, the blockchain based loan has eliminated the third party (a bank or a lawyer) that would have assisted in the signing of the loan and other formal procedures otherwise.
It is not the first time that the Spanish banking firm; BBVA has been among the leading groups in the world to adopt modern technology. Back in April, they carried out “the first global corporate loan transaction” which was supposedly also based on blockchain technology. This transaction was made with a Spanish information technology and defense systems company, Indra. That is not it; In June, just last month, BBVA signed an agreement with Respol, a leading oil and gas company to renew a €325 million worth credit line, making this the very first application of the blockchain technology in corporate finance. BBVA has also applied the Distributed Ledger Technology (DTL) in processing and handling, making it standout as a self-digitizing bank.
Although the bank seems very enthusiastic in its approach towards the blockchain technology, the CEO of Banco Bilbao Vizcaya Argentaria, Carlos Torres, has his doubts. At an event organized by the Spanish Association for Economic Journalism, which focused on the prospects of the technology, he has claimed that blockchain is “not mature and has major challenges”. According to him, “volatility of underlying currencies” and possible compatibility issues with tax authorities and financial regulators remain among the biggest obstacles for blockchain.
It is true however, that blockchain is still a technology that faces numerous problems when it comes to scaling it; there are a number of question marks. Big firms like Russia’s Central Bank, the Bank of Canada and the Central Bank of the Netherlands have similar concerns. Others, however have different views, emphasizing that blockchain is a threat to banks as it is a competing technology. Moreover, when talking about enterprise, not that many people in the consumers, as well as the sellers, are aware of the technicalities associated with blockchain, which gives rise to a general hesitancy towards using it. These issues cannot be resolved overnight.
Regardless, Carlos Torres seems confident and hopeful, saying that despite its contemporary obstacles, “when it is mature and regulators are ready,” BBVA would be interested in applying the technology in the relevant cases as BBVA remains to continue to focus on an innovative financing model for its corporate clients.