Financial innovation company R3 and over 15 of its consortium member banks have successfully completed distributed ledger trial focused on applications in trade finance.

The consortium members have completed two prototypes that demonstrate how distributed ledger technology [DLT] can address the key challenges facing the $45 billion global trade finance industry. The members involved in the trials include Barclays, BBVA, BNP Paribas, Commonwealth Bank of Australia, Danske Bank, ING Bank, Intesa Sanpaolo, Natixis, Nordea, Scotiabank, UBS, UniCredit, U.S. Bank and Wells Fargo.

The banks designed and utilised self-executing transaction agreements, known as smart contracts, on R3’s Corda distributed ledger platform to process accounts receivable (AR) purchase transactions, also known as invoice financing or factoring, and letter of credit (LOC) transactions.

According to the official release, R3’s prototypes validate distributed and shared ledger technology as a digital alternative for trade financing that is significantly faster, more reliable and cost-effective. Estimates suggest that such technology has the scope to reduce operational and compliance costs of paper-based trade financing by 10 to 15% and provide a platform for banks to grow revenues by as much as 15%.

Being largely paper-based, the traditional processes surrounding trade finance are time consuming and prone to risk and fraud. DLT’s ability to provide a single, immutable record of a trade, verified by all parties involved in a transaction not only reduces fraud risk as a seller may submit the same AR invoice to a bank more than once, but also eliminates time-consuming reconciliation processes, which occur when a buyer’s payment information is not accompanied with the necessary data for banks to reconcile a payment with the relevant invoice.  

“Trade financing is a crucial income stream for banks and provides an integral role in enabling businesses in different countries to trade with each other with certainty and peace of mind. However, the processes used to facilitate trade financing have become antiquated and unfit for purpose in today’s increasingly digital world”, David Rutter, CEO of R3, said. “These trials have proved that the blockchain-inspired technology used on our Corda platform holds the key to transforming trade financing for modern financial markets.”