Blockchain Based Letter of Credit Processed by HSBC on Voltron Trade Finance Platform

HSBC has processed a Yuan-denominated letter of credit using the Voltron platform. According to a report in Reuters, this is the first transaction of its type to use Yuan and the first to utilize the Voltron platform.

Voltron explains their application as follows:

“[Voltron] will replace the complex links and networks involved in the trade finance market by providing a shared and synchronised database of transactions between businesses across the world. This digital alternative is significantly faster, more reliable and cost-effective than current paper-based systems, reducing fraud risk and removing time-consuming reconciliation processes by providing a single, immutable record of a trade.”

HSBC has previously reported trade finance transactions using blockchain as have other banks.

Voltron was co-founded by eight member banks including Bangkok Bank, BNP Paribas, CTBC, HSBC, ING, Natwest, SEB and Standard Chartered. The consortium has since grown to more than 50 banks and corporates.

Voltron is expected to improve the trade finance process by simplifying Letters of Credit, delivering shorter settlement times, discrepancy resolution and simplified sanctions screening. Simply by digitizing the process many errors can be eliminated.

Voltron is built on R3’s Corda blockchain platform. Voltron has previously completed numerous global trials which saw many banks and corporates participate in the simulation of multiple digital Letter of Credit transactions. Letters of Credit are said to be used in 11 to 15% of all global export transactions racking up over $1 trillion each year.

Today, most Letters of Credit are based on paper and take 5 to 10 days. By using blockchain technology, the Letters of Credit may be efficiently transacted in less than 24 hours.

Sberbank Announces Letter-of-Credit Business of Legal Entities for Online Availability

Russian banking group Sberbank announced last week it has implemented a feature on remote banking services on letters-of-credit in Sberbank Business Online’s system. The bank revealed:

“Clients can create applications on letters of credit online and independently send them to the bank to be processed. The whole document flow become electronic: clients can send letters on current deals, make changes, submit applications on early payments, as well as answer letters and requests from bank in one click.”

Sberbank also noted that all needed information on letters of credit is available in clients’ personal accounts in Sberbank Business Online are the terms and conditions of general agreements, correspondence with the bank on letters of credit in one window, application statuses, register of letters of credit and correspondence on them. Speaking about the implementation, Senior Managing Director and Director of the Trade Finance Division of Sberbank Yevgeny Kravchenko, added:

“We aim at fast introduction of products in remote channels and to reduce the paper document flow. Thanks to the new service, the electronic structured document replaces the paper application. Now clients can see all deals and be in correspondence with the bank in real time. All our clients, legal entities, will be able to form letters of credit online by the end of the year.”

Standard Chartered Completes Cross-Border Letter of Credit Blockchain Transaction With Oil Company PTT Group

Standard Chartered Bank announced on Wednesday it has successfully executed a pilot transaction for PTT Group, PTT International Trading Pte Ltd and IRPC Public Company Limited. Standard Chartered reported that due to the significant cargo value, oil companies are often reliant on Letters of Credit as a form of short-term trade finance. However, this process is paperwork-intensive and requires up to five days for the delivery of these documents.

“This pilot involved the shipment of an oil product from Thailand to Singapore. Standard Chartered was able to digitise and simplify the end to end exchange of information between all parties in the transaction on the Voltron platform, including the issuance, advising and negotiation of LC and presentation of documents. As the documents were sent electronically, all trade participants can view real time updates on the progress of the transaction. This resulted in a significant reduction of processing time to less than 12 hours, in addition to achieving greater transparency and cost efficiencies across the supply chain.”

Samuel Mathew, Global Head, Documentary Trade Product Management at Standard Chartered Bank, stated:

“This pilot transaction marks the first of many that will follow from our participation with Voltron to digitise trade and enhance the client journey. As our clients increasingly look to technology to address the challenges of today’s global trade environment, we are extremely optimistic and excited about the potential opportunities that Voltron brings to the industry with its demonstrated benefits in improved speed and reduced risks of settlement, as well as its flexibility in connecting banks, businesses and other third-party providers in its network.”

Standard Chartered went on to add that it is one of the founding members of Voltron, a blockchain-based open industry platform to digitally create, exchange, approve and issue Letters of Credits.

LC Lite Uses Blockchain to Streamline Letters of Credit

LC Lite says it is using blockchain technology to simplify and speed up transactions requiring letters of credit. The platform is being launched by the founders of invoice financing platform Incomlend. According to a release, Incomlend currently processes funding volumes worth approximately $240 million annually and expects to top $1 billion in the next three years.

The company notes that global trade financed by Letters of Credit stands at about $2.3 trillion. By using blockchain, LC Lite seeks to “improve cash flow for trade parties and enhance security by reducing fraud and default payments.”

Letters of Credit are a longstanding finance practice which provides a guarantee of payment from an importer to an exporter upon documentary proof of a shipment’s consignment. In this process, banks manage the financial execution of the trade on behalf of the two parties, who agree the terms set out within a Letter of Credit (LC).

According to the company, the LC Lite units of exchange (or LC Lite Token) serve as means of payment booking for the LC contract, means of ownership transfer and vehicle to trade that contract between different parties on the platform. The process also allows for an LC contract to become a tradable asset between investors.

LC Lite states that currently, 80% of all LC documents contain “discrepancies” adding to the cost of the process.

LC Lite wants to replace traditional intermediaries such as Interbank (SWIFT).

Dimitri Kouchnirenko is the Founding Partner of Incomlend and Co-founder of LC Lite, says that Letters of Credit are a huge market, perfectly suitable for implementation on distributed ledger technologies.

“LC Lite’s blockchain typically replaces intermediaries by capturing the unique data of a transaction in an immutable and transparent chain of records. Its smart, self-executing contract features perform transactions automatically upon fulfillment of specified conditions in a digital Letter of Credit between the buyer and the seller.”

To facilitate the platform, LC Lite has formed a strategic partnership with Coinsilium Group, a London-listed crypto investment and advisory firm.

Large Canadian Bank Pilots Blockchain / DLT for Standby Letters of Credit

The National Bank of Canada, the country’s seventh largest bank, is piloting a program to offer the creation and negotiation of standby letters of credit on a blockchain / distributed ledger system.

The pilot uses a distributed ledger (DLT) system created by the company Skuchain and integrated into IT services provider CGI’s Trade360 platform (NYSE: GIB) (TSX: GIB.A).

Together, the software provides a portal and templates where interested parties can contribute to and view each phase in the creation of the standby letters of credit needed for businesses to securely engage in international trade.

Until now, says the related release, the process of establishing a letter of credit has been conducted via email, which, “mak(es) them prone to errors and delays in a process that lacks transparency for beneficiaries regarding terms and approval status.”

The new system will reduce opacity by purportedly allowing participants to append documents to a blockchain that can then be viewed by all parties.

In keeping with the promises often made regarding distributed ledgers, the system in this case may indeed be automating and rendering more transparent some aspects of letter of credit creation formerly handled by a human intermediary in relative private.

The new system, the parties claim, “will improve processing times, reduce risks and help strengthen the bank’s customer relationships,” by giving them a sense of more control and oversight.

There was an instance earlier this year where an Ethereum address could be entered at the Etherscan website to view a document appended to the Ethereum blockhain by #MeToo activists in China.

The document alleging harassment at Peking University was otherwise being stealthily expunged from the Internet by Chinese censors.

For a very small transaction of Ether, the activists were able to “permanently” host the document as a note appended to the transaction on Ethereum.

Theoretically, that note can never be removed without rolling back the entire Ethereum chain (something possible but difficult), and the only other option is to censor all the websites allowing inspection of the Ethereum chain, or to shut down the Internet.

Privately-controlled blockchains/DLTs are much less immutable than truly public ones, and clients using any automated smart contract platform should probably take screenshots.

Nonetheless, this system may indeed improve upon email as email improved upon snail mail and face-to-face meetings.

Patrice Roy, Vice President, Payments, Cash Management and International Solutions at National Bank of Canada, is pleased with the system’s prospects:

“This pilot project is a great opportunity to leverage blockchain technology to simplify the process for negotiating standby letters of credit and guarantees while making it more transparent and secure. This will enable us to offer a simple, fast and efficient experience to our commercial clients which facilitates managing their business.”

Frank Tezzi, Vice-President of Trade and Supply Chain Solutions at CGI, is equally sanguine, and believes the system, “serves as the single source of truth during pre-issuance negotiation and through issuance and re-issuance processes… provid(ing) certainty and transparency for beneficiaries regarding the guarantee process as they enter into a financial transaction.”