The trio of Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore (IDA) have jointly developed a prototype solution built on blockchain to streamline Letters of Credit (LC) transactions.
The consortium, which claims that the technology could change the way businesses around the world trade with each other, utilised the Linux Foundation open source Hyperledger Project blockchain fabric; a development supported by IBM Research and IBM Global Business Services.
The application is said to mirror a paper-intensive LC transaction by sharing information between exporters, importers and their respective banks on a private distributed ledger. This then enables them to execute a trade deal automatically through a series of digital smart contracts.
The proof of concept shows potential to streamline the manual processing of import/export documentation, improve security by reducing errors, increase convenience for all parties through mobile interaction and make companies’ working capital more predictable. The consortium now plans to conduct further testing on the concept’s commercial application with selected partners such as corporates and shippers.
“We are continuously looking for ways to simplify and improve transaction processing for our clients,” said Ather Williams, BofA Merrill’s head of global transaction services. “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 digitising trade transactions, potentially resulting in considerable benefits to the supply chain process.”
“Many people are talking about the theory of blockchain, but for the first time we can start to see how this technology might be used to solve the real world challenges our customers face,” said Vivek Ramachandran, global head of product for HSBC’s trade finance business.
“It’s really exciting to have a valid proof of concept. LCs 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.”
The new concept is a seven-step process, by which each of the four parties involved in an LC transaction – the exporter, importer and both of their banks – can visualise data in real time on a tablet and see the next actions to be performed. Each action in the workflow is captured in a permissioned distributed ledger, giving transparency to authorised participants whilst encrypting confidential data.
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