The financial services arm of iPhone manufacturer Foxconn of Taiwan has partnered with Chinese online lender Dianrong to launch Chained Finance, a blockchain-based supply chain finance platform.
Foxconn subsidiary FnConn and Dianrong trialled a proof-of-concept pilot with $6.5m of loans to a number of unnamed companies. Chained Finance will initially focus on the automotive, electronics and garment industries.
FnConn CEO Jack Lee said in a statement, “By using the Chained Finance platform, every payment, every supply chain transaction, can be more transparent, manageable and easily authenticated. Chained Finance will provide timely, efficient support to far more suppliers of all sizes. It will also help ensure the timely delivery of products to end customers and improve efficiencies across the entire supply chain.”
The platform is designed to connect non-bank lenders and suppliers who don’t typically deal with financiers, Lee said in an interview with CoinDesk, a news service specialising in bitcoin and blockchain technology and in which Foxconn itself is an investor.
Lee said that costs could be reduced by cutting out commercial banks and other third-party funders, with savings trickling down the entire supply chain.
“We think all the supply chain, not just supply chain finance, can be handled by blockchain, [which] will make the whole business transaction easier to validate and enhance the efficiency of the whole ecosystem,” Lee told CoinDesk.
The business is looking to onboard clients from China and around the world with the ambition of getting finance much deeper into the supply chain than traditional SCF programmes usually manage to do. Lee said that traditional SCF involves a tier-1 supplier getting funding from a finance provider and often using that money to pay their suppliers. But because some of the more complex global supply chains go perhaps 13 layers deep, Lee argued that it can, therefore, take days or weeks for funds to reach the actual manufacturer in need.
Dianrong co-founder Soul Htite explained that, prior to taking over a blockchain node or being given credentialed access to the platform, a core supplier would hand over its data to Chained Finance, which would then onboard its suppliers. Suppliers will not be charged to join but P2P lenders will pay a fee for access to the system.
Htite explained that the three targeted industries all had a relatively shallow pool of suppliers, which he says is necessary at this early stage of the platform’s development. He added that an oil industry executive said that his industry had up to 13 layers of suppliers, but conceded, “As interesting as it is, I don’t think we have the capacity to change the whole world. We want to be realistic and just focus on these [three industries].”
Explaining the value
Htite said that Dianrong’s decision to join the Hyperledger consortium was related to the supply chain financing product. Chained Finance currently has 40 employees, a figure that is expected to rise to 200 by the end of this year. “The majority of them will be developing material to explain the value and the need to onboard more and more suppliers,” Htite said.
However, expansion plans are deliberately being taken forward slowly to test the capacity of various blockchains that can interoperate with the Chained Finance platform, Htite said. However, the platform could expand into India within two years, followed by Africa.
Yet, in as little as two years, Lee said, the project could expand to India, with Africa following shortly thereafter. Asked about speculation that Foxconn might build a $7bn factory in the US, Htite said only that he expects to be able to offer US suppliers blockchain-based trade financing in as little as five years.