Deustche Bank, HSBC, and five other big banks are collaborating on a blockchain project

Seven major banks have signed up to a new project aimed at increasing global trade among small and medium-sized businesses using blockchain, or distributed ledger, technology.

Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit have all signed up to a Memorandum of Understanding, signalling that they will work together to develop and commercialize a new product called Digital Trade Chain (DTC). All the banks participating in the DTC project are equal investors and have each put in a six-figure sum.

Andrew Betts, Head of Global Trade and Receivables Finance at HSBC, told Business Insider: "What we like very much is the collaboration approach. We've been advocates of the industry working together and blockchain has been very much front of mind. We really, genuinely pool our resources and expertise in terms of what we know about this technology so we can generate benefits for clients."

DTC is based on a prototype trade finance tool developed by Belgian bank KBC, which uses blockchain technology to connect all parties involved in international trade - buyers, sellers, transporters, banks financing the deals on either side etc. International trade is currently a disparate and convoluted process where each party deals directly with generally only one other participant, rather than seeing the whole process.

Betts says: "What we're trying to do is get something that is simple, fast, efficient, and secure for customers to be able to trade within a secure platform. By using a strong, secure, authorised and closed network, enabled through blockchain, it will enable the customer to initiate transactions digitally, be it online or through mobile devices, and then be able to track those transactions all the way through from commitment to pay, settlement, notification, and so on."

Betts said he hoped to have a version of the project launched to clients by the end of the year.

The DTC project is the latest example of talk developing into action in the blockchain space. Banks around the world have been talking about the potential of blockchain to transform finance for almost two years now but the technology is only just beginning to filter through into concrete projects.

Blockchain technology, also known as distributed ledger technology, is a form of shared database originally developed to underpin the digital currency bitcoin. It enables all parties to see the same version of a ledger and uses complex cryptography and group authentication to police the editing of the ledger.

It will enable the customer to initiate transactions digitally, be it online or through mobile devices, and then be able to track those transactions all the way through - Andrew Betts, HSBC

The technology was originally developed to do away with the need for a central bank for bitcoin, meaning it could be totally independent. But this feature has almost endless applications for other industries and processes that involve a trusted middleman or central authority and banks have been particularly keen to apply it.

Blockchain's inbuilt security and trust checks mean banks can cut out middlemen in processes like settlement and clearing and instead deal directly with each other. This, in turn, cuts down costs. Santander estimated in a 2015 report that the technology could save banks as much as $20 billion.

The seven banks say in a statement announcing the collaboration that the DTC will "address the challenge of managing, tracking, and securing domestic and international trade transactions." By allowing real-time monitoring of various parties on the blockchain, the product will reduce paperwork and increase transparency.

Last year the Commonwealth Bank of Australia and Wells Fargo used blockchain technology for a "proof of concept" test on international trade, with two parties using the tech to buy a cotton shipment.

The banks involved in the project will promote it in different areas: KBS in Belgium and Luxembourg; Natixis and Société Générale in France; Deutsche Bank and UniCredit in Germany; UniCredit in Italy; Rabobank in the Netherlands; and HSBC in the UK.