A consortium of major banks has completed development of a blockchain application designed to overhaul trade financing. The eleven institutions—Bangkok Bank, BBVA, BNP Paribas, HSBC, ING, Mizu
A consortium of major banks has completed development of a blockchain application designed to overhaul trade financing. The eleven institutions—Bangkok Bank, BBVA, BNP Paribas, HSBC, ING, Mizuho and five others—built the platform on R3's Corda network, targeting sight letters of credit to streamline processes that have remained largely unchanged for decades.
Trade finance is the backbone of global commerce, moving capital across borders to fund shipments. But the mechanics run on centuries-old procedures—physical documents, manual verification, risk of error at each handoff. The new application consolidates these steps into a single interface. Carriers and shipping companies can prepare and validate details about goods as they move through the supply chain, whether their internal systems match those of the buyer, seller, or intermediary institutions.
That interoperability addresses a real problem. A single shipment might touch a dozen different companies, each running different technology. The platform bridges that gap without forcing anyone to rip out their existing infrastructure.
David Rutter leads R3, the firm that developed Corda. He described the status quo harshly: "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the processes and systems banks are forced to use today, the infrastructure that supports trade financing is extremely outdated and prone to risk and error." Over the past year, his team worked closely with the consortium members to build and test the prototype. Rutter said the work proved that "the challenge no longer needs to stand in the way of giving businesses access to the services they need to trade across borders. The application we have built is the first of its kind and we look forward to rolling it out to our Corda users across the world."
The development cycle took twelve months. Several member banks plan to pilot the application in live environments before the end of 2017, with broader rollout targeted for 2018.
Jim Bidwell manages trade services for RBS. He highlighted how financial institutions can work together on modernization: "The initiative is a great demonstration of how we can collaborate to develop innovative solutions for customers." Blockchains, he noted, open possibilities to cut costs and improve how customers experience trade financing—territory that has remained stagnant for years.
Ivar Wiersma directs innovation at ING's wholesale banking unit. He sees the platform as a turning point: "This is a great step forward in the process of digitalizing and standardizing 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." Faster settlement and lower operational costs follow once multiple parties can exchange data without manual translation.
HSBC's Vivek Ramachandran leads growth and innovation for the bank's commercial banking division. He committed to extending the prototype with support from title registry providers and legal specialists to ensure the system can transfer goods ownership in actual transactions. "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," he said.
Craig Weeks runs the international banking group at US Bank. He emphasized what the work demonstrates about blockchain capability: "This work has proven the viability of the technology to efficiently manage the process and we're very much looking forward to testing this in an operational setting." Transparency through every stage of a trade transaction—visibility that the current system obscures behind layers of intermediaries and paperwork.
Corda itself represents over two years of research and development by R3 and its broader consortium, which numbers more than seventy of the world's largest financial firms. The platform is open source software engineered for financial services use. In May, R3 secured $107 million in Series A funding—at that time the largest investment ever raised for blockchain and blockchain technology.
