A single source of truth for trade and receivables finance?

Why in May this year, are all the major blockchain consortiums gathering in London for the first time?*

In May 2018, HSBC and ING carried out the first blockchain enabled commercial trade finance transaction. The product was a shipment of soybeans from Argentina to Malaysia and the transaction was completed in less than 24 hours – compared to the usual 5 to 10 days for the use of traditional paper-based letter of credit.

Despite Blockchain and trade and receivables finance being one of the most talked about subject in recent months, many individuals who could be affected by it – those in trade finance banks, logistics companies, credit insurers, factoring companies, are still keen to find out more of the precise workings and differences between the many banking consortiums set up to enable blockchain (or distributed ledger technology) financing. Consortiums, such as we.trade, Marco Polo, Voltron and Komgo, all address different aspects of trade and receivables finance and work in different ways. For example, Marco Polo’s aim is to facilitate open account trade by financing both pre- and post-shipment; whereas We.Trade’s focus is to make trade facilitation easier and to finance SMEs; Voltron is involved in in the digitisation of documentary trade; and Komgo’s purpose is in enabling seamless data communication between commodity trade partners. And while both Marco Polo and Voltron use Corda technology, We.Trade uses Hyperledger Fabric and Komgo uses Etherium.

While the consortiums are keen to attract new followers, there are a number of issues and questions to be addressed by prospective bank members as well as other stake holders such as corporates, credit insurers and logistics companies:

  • At what stage in development are each of the consortiums and what are they offering?
  • What are their core differences?
  • What are their future plans?

In addition to these most fundamental questions there are more operational aspects that require airing, such as:

  • How will the consortiums connect, or interoperate with each other?
  • What are the costs involved?
  • What are the details of real-life example transactions so far?
  • What is the state of play with developing standards and governance?

Blockchain and DLT offers revolutionary technologies in the trade and receivables finance sector, perhaps becoming the norm in the near future and making transactions faster, more secure, and cheaper. But understanding exactly what is on offer is key to assessing suitability and strategy in this rapidly developing sector.

*Consortia 2019. www.consortia2019.com