What a diff’rence five months make.
HSBC and ING announced on November 4 they completed a trade-finance transaction on behalf of Reliance Industries exporting a cargo of polypropylene to Tricon Energy in the U.S.
This is just five months after the same two banks guided a pioneering trade by Cargill, which shipped soybeans from Argentina to Malaysia. The speed with which the entire process was executed has shortened dramatically, despite this new deal being more complex and involving more entities.
Anish Ganatra, chief financial planning and analysis at Reliance in Mumbai, says it took a single day to present post shipment documents, including letter of credit, confirm remittance and transfer title of the goods. That’s a big advance against the Cargill deal, which took more than five days because it had to incorporate paper-based bills of lading.
The Reliance example shows that the entire documentation process in trade finance can now be put on a distributed ledger.
“For Cargill’s transaction, the bank acceptance process happened in 24 hours,” Joshua Kroeker, blockchain lead for global commercial banking at HSBC in Hong Kong, told DigFin,“ However, the paper-based transfer of title occurred traditionally through a courier. In Reliance’s pilot, the digital transfer of title occurred alongside the bank acceptance process, which was completed in one day.”
Old process, new platform
The tech behind both of these transactions is Voltron, the letter-of-credit platform built using the DLT of R3’s Corda. Voltron’s bank owners, including HSBC, ING and Standard Chartered, officially launched it last month at an industry conference, with commercial production slated for early 2019.
Big corporations like Reliance will be eager users.
“We are keen to adopt new technology,” said Ganatra. “If your competitors are able to do the transaction in less than a day and you can’t, you will go out of business. Technology adoption is no longer a choice, it is an imperative.”
He described the process: Tricon issued a request for an LC. Once Reliance agreed this with both parties’ banks, ING issued the LC. This came with payment conditions, such as ensuring delivery of all the goods and their quality upon arrival. Reliance then shipped the goods and presented Tricon with an invoice and other supporting paperwork (including a bill of lading) to demonstrate it had met the LC’s terms.
That account could be for any LC, but in this case, the entire process was done on Voltron-a DLT platform with all the documents in their digital form. HSBC, representing Reliance, confirmed the terms and passed the documents to ING; when ING also confirmed the details, Tricon issued remittance instructions to ING, which carried these out while Tricon took receipt of the shipment.
Adding more pieces
Incorporating the bill of lading was a big step up from the Cargill pilot. This is “a critical step” of processing letters of credit, because it represents the change of ownership over the cargo, says Chris Sunderman, blockchain initiative lead for trade finance services at ING wholesale banking in Amsterdam.
This was not a simple matter of just putting documents on the blockchain. Legal issues need to be solved as well.
The tech behind the Reliance/Tricon deal involved integrating Bolero—a well-established e-BL solution provider—onto the Voltron distributed ledger.
“This is a significant improvement to the first pilot and a real game-changer in the letter-of-credit process,” Sunderman said.
Automating bills of lading is what speeded up the entire process. “Now the entire process can go as fast as the electronic LC on the blockchain,” said Ross Wilkinson, HongKong based head of global accounts at Bolero.
Expanding the network
Kroeker says paper has been necessary to trade finance because of the sheer number of participants, and the impossibility of managing everyone’s bespoke digital solution. Voltron’s approach has therefore been to serve as a hub in which each vendor can plug in their own software.
“There are good digital – centralized – solutions,” he said. “We’re not going to recreate all of that.”
Earlier this year, the banks put Bolero together with CryptoBLK, the Hong Kong software company that designed Voltron.
Wilkinson says this will enable Bolero to connect to multiple blockchain communities, including R3’s Corda and IBM’s HyperLedger. And it allows Voltron to now bring thousands of freight forwarders on board.
Duncan Wong, founder and CEO at CryptoBLK, says the system is flexible enough to let freight forwarders revert to paper documents in the middle of a transaction if required.
The attractiveness of the platform is drawing more tech partners: Essdocs told DigFin it will participate with its CargoDocs solution, while e-Title, a P2P title exchange company, is also expected to join.
“We want to enable our clients to use the option they are already commonly applying in their transactions,” said ING’s Sunderman.
Piece by piece, Voltron is replicating all the choices that participants enjoy in the analog world. This is vital to any blockchain project, it becomes more effective as the network scales.
“If you have stakeholders that are not on the platform, you break the digital chain,” Reliance’s Ganatra said.
But each country has its own rules and regulations, and multinational corporations need to be sure digital processes comply.
“Ensuring that cross-border transactions recorded on a blockchain platform remain admissible across jurisdictions is another challenge to faster adoption at scale,” Ganatra said.
But market participants are optimistic this will get easier. As banks, trading companies, freight forwarders and other players transact more across blockchain – because it will become a competitive necessity – governments will feel growing pressure to ensure their laws keep pace with the tech.