Consortium develops blockchain prototype solution to replace LC transactions
BANK of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore announced on Wednesday that they have jointly developed a prototype solution built on blockchain technology that could change the way businesses around the world trade with one another.
The application mirrors the traditional paper-intensive letter of credit (LC) transaction methodology used for sharing information between exporters, importers and their respective banks but does this on a private distributed ledger. This then enables the users to execute a trade deal automatically through a series of digital smart contracts.
Trade finance processes are typically time and labour-intensive, involving multiple documents and checks to reduce risk and provide assurance to sellers, buyers and their banks. An LC, or documentary credit, is essentially a guarantee provided by a bank that a seller will receive payment from a buyer once certain conditions are met; for example, once the seller can provide proof that they have shipped the buyer's goods.
The consortium utilised the Linux Foundation open-source Hyperledger Project blockchain fabric whose development was supported by IBM Research and IBM Global Business Services.
According to the consortium, the proof of concept shows the potential to streamline the manual processing of import/export documentation and improve security by reducing errors.
This could also 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.
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