A dozen banks have reached a ‘major milestone’ in the digitisation of trade finance, with the creation of a prototype app designed to streamline the processing of sight letters of credit (LCs).
Tipped to “significantly reduce inefficiencies and costs”, the app is based upon the ground-breaking Corda protocol hatched by R3: a financial software consortium founded in 2014 that has so far amassed 80 members – including most of the world’s biggest banking brands.
Inspired by the workings of the blockchain technology that underpins Bitcoin, Corda is a distributed ledger platform that R3 hopes will be adopted across the entire industry as a new operating system.
With that in mind, the consortium took the decision in November last year to make Corda open source, enabling any finance institution to use and adapt it without incurring charges or navigating formal licensing procedures.
The 12 banks behind the new app include BNP Paribas, HSBC, ING, Natixis, RBS, Mizuho and Scotiabank.
R3 founder and CEO David Rutter said: “Like so many of the processes and systems banks are forced to use today, the infrastructure that supports trade financing is extremely outdated and prone to risk and error.
“The work we have been doing with our members over the past year has shown that this challenge no longer needs to stand in the way of giving businesses access to the services they need to trade across borders.”
Rutter noted that the app is “the first of its kind”.
HSBC growth and innovation head Vivek Ramachandran explained: “The prototype integrates a standardised user interface that allows carriers and shipping companies to prepare and validate shipping details when they onboard goods and deliver them to the buyer – even if they are on a different technology platform.
“We believe that offering optionality in terms of the systems and technologies participants use, and ensuring interoperability between these technologies, will significantly advance efforts to digitise trade.”
Ramachandran added: “To further enhance the prototype, we’ll continue to work with established and emerging title registry providers to ensure this solution can provide a secure and legal title transfer of goods in a live environment, and anticipate piloting the app on the R3 network before the end of the year.”
ING head of innovation wholesale banking Ivar Wiersma said: “This application has the capacity to make the overall trade flow – currently hampered by outdated processes – faster and more cost-effective.
“This is a great step forward in the process of digitalising and standardising the documentary trade finance process from start to finish, connecting multiple parties in the trade finance chain with the feature of interoperability of the different technologies these parties use.”
BNP Paribas global head of trade competence Marguerite Burghardt noted that, while LCs have not progressed as far as the open-account segment of banking in recent years, they remain a good way to finance trade and mitigate risks.
“If the industry manages to make the whole process fully digital, transparent and [based on] straight-through processing,” she said, “this could mean renewed development and wider access to this financing technique.”
Find out more about Corda at the platform's official website.