Trio consortium partners develop blockchain-based prototype for trade finance

Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore have announced that they have jointly developed a blockchain prototype in order to streamline Letters of Credit (LC) transactions.

According to IBTimes UK, the consortium utilized the Linux Foundation open source Hyperledger Project blockchain fabric that is supported by IBM Research and IBM Global Business Services. The application reflects LC transaction through information sharing on a private distributed ledger, between exporters, importers, and their respective banks. They can then automatically execute a trade deal with a series of digital smart contracts.

“We are continuously looking for ways to simplify and improve transaction processing for our clients. Blockchain has reshaped our thinking on how to make transaction processes more efficient and transparent for all parties. The success of this proof of concept is a significant development towards digitizing trade transactions, potentially resulting in considerable benefits to the supply chain process," Ather Williams, global transaction service head, Bank of America Merrill Lynch, said as reported by IBT UK.

The proof-of-concept indicates potential to enable mobile interaction thus increasing the convenience for all parties, streamline the manual process of export and import documentation, increase the security by reducing errors among others.

The concept enables each of the four parties involved in an LC transaction namely the exporter, importer and both of their banks to visualize data in real time and plan the next actions to be performed. The permissioned distributed ledger captures each action in the workflow, providing transparency to authorized persons.

“It's really exciting to have a valid proof of concept. Letters of Credit are an important part of the trade system, but they are based on 20th-century technology, not 21st. Our challenge is to take this from concept to commercial use; making it quicker and easier for businesses to connect with new suppliers and customers at home and abroad," Vivek Ramachandran, global product head, trade finance business of HSBC, said, IBT reports.

Trade finance process involves multiple documents and checks to reduce risk and provide assurance to sellers, buyers, and their banks. Due to this, they are time and labor intensive. The bank provides LC or Documentary Credit as a guarantee that a seller will receive payment from a buyer if certain conditions like proof of shipping, are met.

The consortium plans to further conduct testing on the concept’s commercial application with partners including corporate and shippers.