JD Streamline its Assets-Backed Securities through Blockchain
Several days ago, JD Finance has announced the completion of a blockchain-based underlying asset management system of JD’s asset cloud factory. And so far, the system has already began to facilitate the consumer finance service companies using the the system.
“Asset Securitization is the best application scenario for Blockchain technology,” noted by Yanshan Hao, the Director of Department of Structure Finance in JD Finance,
“By cooperating with Golden Stand, a company which JD also invested in, JD is now advancing the application of Blockchain technology. Normally,we, as Asset-backed Securities(ABS) service provider, will generate transaction data and keep fidelity of them through JD’s asset cloud factory, a process important to ABS. Henceforth, we will keep on exploring the possible approaches to apply Blockchain in the the entire business process of asset cloud factory including ABS target asset filtering, packing, issuing (distributing), transacting, and the duration management.”
The Blockchain Technology can Reduce ABS Financing Cost
In September, 2016, JD Finance has initiated the “ABS Cloud Platform”on which many infrastructure-level services are based, including those of the capital intermediary service from asset cloud factory, the mezzanine fund investment service and SPV(Special Purpose Vehicle). The core of capital intermediary service from asset cloud factory is to provide liquidity and risk management service by providing financial product and working as a counterparty, thus lowering the threshold and initial costs for issuing ABS.
It is introduced by Jingdong that in a typical case of JD’s asset cloud factory, JD Finance, as a fund provider, will get involved in asset risk control, lending, repayment, and even the comprehensive management of structural assets package by partnership with other financing companies.
Generally, there are many participants being involved in the process to for the target asset package, including financial institutions like the asset provider, the capital/fund provider, SPV (Trust), etc. Furthermore, all the participants within this process have their own operation systems. However, due to the large volume of transaction, the high frequency of transaction, the inaccuracy of information transmitted and the complication of settlement and clear, distrust among transaction parities for the authenticity of target asset quality has always been considered as the pain point of this industry.
As for this situation, Yanshan Hao explained:
“the blockchain is a brand new decentralization protocol, which can safely store transaction data, prevent the information from being fabricated and falsifying, and automatically execute the smart contract without any audit from the centralized institution. Moreover, the blockchain can unite all of the market participants within the ABS transaction to maintain the same transaction ledger data, a mechanism that can bring instant ledger information. Furthermore, it can maintain the ledger’s authenticity and integrity. Therefore, a transparent and traceable ABS can be improved ”
The asset cloud factory of JD Finance run a blockchain-based asset management system via three system verification nodes, so that the fund flow like the loan application, approval, lending will be achieved via the verification nodes.
When packaging the target assets, the asset provider, the capital provider (JD Finance), SPV (Trust Company) have their own private key. Once a loan is approved by the investment decision machnism of JD Finance and lent JD Payment, JD Payment will generate a unique voucher the transaction and record it into the Blockchain. This is how a ABS transaction is made via Blockchain.
With the Blockchain, the asset registration system of the asset cloud factory of JD Finance guarantees the authenticity of the initial assets data, which are also immutable . Therefore, it helps them achieve fidelity, thereby increases the confidence of institutional investor and reduce the financing cost. Meanwhile, as the information and capital among different institutions can be real-time synchronized through distributed ledger and consensus mechanism, the settlement and clearing between various institution will be less time or energy consuming.
Providing the Buit-in Infrastructure Service for Traditional Finance
“The application of Consortium Blockchain technology in ABS solve the pain point of ABS provider model as it streamlines the business procedure of ABS. In addition, it helps the capital providers quickly and efficiently figure out target assets and helps the intermediary organizations to discern the risk of default in real-time. For the regulators, it can help them manage the financial leverage and prevent the systematic risk in advance. This creative attempt on Blockchain will make a difference on as it provided lessons for the financial market to find ways to reduce cost, increase efficiency and guarantee asset data integrity.
JD Fiance said, “ABS Cloud Platform” will comprehensively make the most of financial technologies, including the Blockchain and machine learning to bring a high speed channel for asset provider and capital provider, and it will duplicate this efficiency to other traditional financial institutions, including the bank, trust, securities trader and asset management organization.
JD Finance has stated its strategy for 2017 recently and said it will increase investment of money and time in technology with no less than 100% year-on-year growth rate.
It is reported that, the asset cloud factory of JD Finance will cooperate with more credible third party institutions to participate the ABS initiated by JD and its financial partners. All these efforts will bring a more credible information assets data for ABS