The R3 consortium has disclosed that it has worked with over 15 of its member banks to complete two distributed ledger technology prototypes. They demonstrate how the technology can address the key challenges facing the $45 billion global trade finance industry. R3 is a financial innovation…
The R3 consortium has disclosed that it has worked with over 15 of its member banks to complete two distributed ledger technology prototypes. They demonstrate how the technology can address the key challenges facing the $45 billion global trade finance industry.
R3 is a financial innovation firm that leads a consortium partnership with over 50 of the world’s leading financial institutions. These prototypes validate distributed and shared ledger technology as a faster, more reliable, and cost-effective digital alternative for trade financing.
Participating banks designed and utilized smart contracts on R3’s Corda distributed ledger platform to process accounts receivable (AR) purchase transactions (or invoice financing or factoring) and letter of credit (LOC) transactions.
The banks involved in the trials include Barclays, BBVA, BNP Paribas, Commonwealth Bank of Australia, Danske Bank and ING Bank. Others are Intesa Sanpaolo, Natixis, Nordea, Scotiabank, UBS, UniCredit, U.S. Bank and Wells Fargo.
According to R3, the Corda platform does not allow unnecessary global sharing of data. Rather, only parties with a legitimate need to know can see the data within an agreement. It choreographs workflow between firms without a central controller and achieves consensus at the level of individual deals between businesses.
Other features of Corda are that it directly enables supervisory and regulatory observer nodes. It records an explicit link between smart contract code and human language legal documents. Its transactions are validated by the parties to the transaction rather than a broader pool of independent validators. Yet, it has no native cryptocurrency.
The CEO of R3, David Rutter, points to the transformational approach that the initiative will bring to the trade financing sector.
He said in a release:
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. 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.
The initiative will improve the traditional processes of trade finance which are mostly paper-based, time-consuming, and prone to risk and fraud.
As a significant source of revenue for banks and a crucial role in facilitating international trade which has been undermined by inefficiencies, trade finance using the traditional processes has been threatened
The R3 group’s objective is to work together to design and deliver advanced distributed ledger technologies to the global financial markets. It operates on the notion that distributed ledger technology has the potential to change financial services as profoundly as the Internet changed media and entertainment.
Featured image from Shutterstock.
Last modified: January 25, 2020 11:50 PM UTC