Daimler and Landesbank Baden-Württemberg (LBBW) have for the first time jointly used blockchain technology to execute a financial transaction.
Blockchain technology makes it possible to conduct direct and secure financial transactions worldwide within seconds.
Blocks of encrypted digital data are saved on several servers. It is a shared ledger technology which allows any participant in the business network access to a single system of record (one ledger).
Daimler and LBBW successfully tested the technology for capital markets in parallel with the process that is required by regulatory authorities.
Through LBBW, Daimler launched a €100 million, one-year corporate Schuldschein (a bilateral loan, normally privately placed, unlisted and unregistered) within which savings banks Esslingen-Nürtingen, Ludwigsburg and Ostalb, as well as LBBW acted as lenders.
The entire transaction — from the origination, distribution, allocation and execution of the Schuldschein loan agreement, to the confirmation of repayment and of interest payments — was digitally carried out via blockchain technology in cooperation with IT subsidiaries TSS (Daimler) and Targens (LBBW).
Bodo Uebber, member of the board of management responsible for finance and controlling and Daimler Financial Services, said: “This pilot project is our first step in testing the wide variety of possibilities for using blockchain technology and assessing this technology’s potential for future transactions and financial processes.
“Simultaneously with launching the Schuldschein, we are conducting other projects to determine where blockchains could also be used to increase efficiency and support our business models. LBBW has been our partner for many years. It has extensive experience in this field, and its innovative projects are helping to shape the future of the financial markets.”
Daimler, as well as LBBW, want to thoroughly test the potential of blockchain early on and gather know-how for the creation of new business models. The manufacturer said it implements an open-source culture and gains access to talented individuals and innovations as an active partner in the global technology and startup environment.
Rainer Neske, chairman of the board of managing directors of LBBW, said: “Daimler was an ideal partner for us, because this company is also greatly interested in using blockchain.
“Thanks to the constructive and agile collaboration in a joint team, we were soon able to use this technology in a real transaction.”
The joint pilot project of Daimler and LBBW highlights the closer partnerships between all parts of the financing chain.
Joachim Erdle, head of corporate finance at LBBW, said: “Blockchain technology will change the role of banks as intermediaries in the economic process. We don’t want to merely observe this development; we want to proactively shape this field. The Schuldschein is especially well-suited for our entry into the use of blockchain technology. As the market leader for corporate Schuldscheine for more than a decade, we have extensive expertise.”
Experts argue blockchain will increase the automation of financial transactions so that they can be concluded much faster and more cost-efficiently than in the past.
As a result, digital processes will replace labour-intensive manual steps that are so far necessary for processing Schuldscheindarlehen. For example, blockchain can be used during the creation of loan contracts and the examination of received payments.
Daimler and LBBW expect blockchain to have similar efficiency-enhancing potential for syndicated loan transactions and export financing.
Kurt Schäfer, vice president in Daimler’s treasury department, said: “We, as a leading automaker, want to play an active role in the global blockchain community and help shape the cross-sector blockchain standards.”
Earlier this year, there were predictions that blockchain would be adopted across the financial sector in ‘three to five years’.
Late last year, Toyota Financial Services (TFS) made the corporate decision to join R3’s CEV blockchain consortium to explore distributed and shared ledger technology for potential applications in auto financing.
This made TFS the first global auto finance captive to collaborate with more than 50 of the largest financial institutions in R3’s network on developing use cases for blockchain in the financial industry.
