Processing trade letters of credit digitally
Sector: Tertiary sector · Industry: Banking and financial services · Organisation: Standard Chartered Bank · Maturity level: Pilot
Standard Chartered Bank conducted a pilot transaction for a letter of credit using the Voltron blockchain platform in August 2019. By digitizing document exchanges, processing time was reduced from the usual five days to under twelve hours. The underlying Corda technology enabled confidential, audit-proof data synchronization between the participating trade partners.
Documentation status
- Project status: Pilot (as of 07 August 2019) — Successful completion of a letter of credit pilot transaction in under twelve hours on the Voltron platform.
- Evidence: Evidence medium
- Editorial review: pending
Description
Standard Chartered Bank tested the fully digital processing of letters of credit via a distributed ledger with the Voltron initiative. A letter of credit secures global goods flows by the importer’s bank guaranteeing payment to the exporter once the submitted trade documents have been contractually verified. Traditionally, this requires days of error-prone shipping of paper documents, which is reduced to a few hours through shared data exchange on the platform.
In August 2019, Standard Chartered Bank demonstrated through a transaction how the process of a traditional letter of credit can be revolutionised. While conventional letters of credit take up to five days due to postal delivery and manual checks, the Voltron pilot completed the same process in less than twelve hours. The solution is based on the Corda technology from the R3 consortium, which is specifically designed to meet the strict data protection and regulatory requirements of the financial industry. All participants in the network only have access to transaction data for which they have explicit permission, thus preserving banking secrecy and business data. The successful pilot case highlighted the enormous potential for risk reduction, increased transparency and accelerated liquidity in global trade finance.
Perspectives
B2B — organisations perspective
B2B players in import and export benefit from immediate transparency over document status and dramatically shortened financing cycles. Collaboration between banks, exporters and importers is standardised and tamper-proof.
Employees perspective
Trade finance employees are relieved from error-prone manual data entry and verification steps. Instead of tracking freight documents by post, they manage and monitor transactions digitally on a central platform.
Benefits
General
- Reduction of processing time from up to five days to under twelve hours
- Elimination of delays caused by physical document shipping
- Tamper-proof and traceable process steps
B2B — organisations
- Faster release of goods and improved liquidity
- Lower administrative processing costs
- Minimised risk of document forgery
Employees
- No manual document reconciliation required
- Clear digital verification process in real time
Challenges
General
- Need for broad participation of all global trade partners and banks
- Legal recognition of digital trade documents in different jurisdictions
B2B — organisations
- Integration into existing internal ERP and processing systems
- Alignment of common technical and business standards
Employees
- Transition of established working habits from paper documents to digital platforms
Technology foundation
The Voltron platform is based on the Corda distributed ledger technology from R3, which was specifically developed for regulated financial institutions and enables selective, encrypted data exchange only between directly involved parties.
Implementation examples
Standard Chartered Bank letter of credit pilot on Voltron
Traditional letters of credit require lengthy, paper-based verification processes and international document shipping, which delays goods release and ties up capital.
In August 2019, Standard Chartered successfully completed a letter of credit transaction on the Voltron blockchain in under twelve hours.
In August 2019, Standard Chartered Bank demonstrated the settlement of a Letter of Credit via the Voltron platform as part of a pilot project. The entire process from issuance through document exchange to approval took less than twelve hours, whereas conventionally this process takes up to five days. The project was based on R3's Corda technology and proved the practical viability of decentralized systems to accelerate international trade.
Reduction of transaction time from up to 5 days to less than 12 hours.
Elimination of media discontinuities, reduction of multi-day processing times, and minimisation of fraud risks in document presentation.
Tags
Trade finance, Letter of credit, Corda, Letter of Credit, Trade Finance