Standard Chartered Bank uses blockchain technology to reshape trade finance

Rage Comment : Currently, banks can only detect duplicate financing of the same set of invoices or BLs based on their own databases. Within a specified period of time, if the source of funds for an invoice is borne by one bank, but the bank is unlikely to detect whether the invoice is borne by another bank, it seeks to use distributed ledger technology to simplify and facilitate verification to achieve the purpose of checking duplicate financing. Although large global banks are increasingly bullish on "blockchain", when these institutions use this term, they are not very clear about what kind of technology it is. So far, most large financial institutions are experimenting with the technology in a private consortium setting. Even public announcements emphasize use cases rather than supporting the entire experiment through this basic technology.

Translation: Krystal

As the discussion among major banks on the "positive energy" significance of blockchain technology has "settled", the consensus that "this technology should be used" has "emerged" among major institutions.

Currently, international trade is one of the areas where this technology is frequently used. Some institutions have expressed their willingness to use this technology in supply chain-related areas, hoping to ensure the safekeeping of physical goods and trade financing (one of the banking businesses, which refers to short-term financing or credit facilities provided by banks to importers or exporters related to import and export trade settlement).

One of the more frequent use cases is international trade, where organizations interested in supporting supply chain-related areas use this technology to ensure the safekeeping of physical goods and trade finance.

So far, IBM has publicly thrown its weight behind the effort, announcing supply chain use cases, while blockchain newcomer Wave is launching a trial with Barclays that found the big bank digitizing the paper money supply chain process.

Standard Chartered recently announced (first revealed in December) that it was working with Development Bank of Singapore (DBS) to track trade finance, and both companies are now looking to expand their client base to include Singapore’s Infocomm Development Authority (IDA), the government’s IT and communications departments, and other banks.

Gautam Jain, global head of digital, client access and product development at Standard Chartered, said the proof of concept (PoC) was moving forward and the bank was moving towards “full commercialisation” of the product.

Gautam Jain is head of global client access, transaction services at Standard Chartered

Jain told reporters:

“Starting in Singapore, we plan to invite more banks to join us and assess the impact of widespread commercialisation of this technology, thereby enhancing Singapore’s position as a global trading hub.”

Still, Jain cautioned against raising expectations, claiming that banks themselves do not have a specific blockchain technology strategy.

Jain continued:

Instead, Standard Chartered sees the technology as a way to enhance its trade finance services and respond to customers’ demands for improved services.

“We will continue to innovate and develop solutions to solve real-world problems. More importantly, this move will help drive the overall digitalization of trade and trade finance.”

He also hinted (though not explicitly) that Standard Chartered was looking at additional trials as part of its push to “innovate and digitize” its own business. However, it was Jain who saw the project as having the biggest impact.

Remove redundancy

Similar to other blockchain startups, Jain said Standard Chartered and DBS are focusing on bills of lading (BLs). However, the problem is that when parties finance the same BL more than once, it means that customers get funds from different banks for the same invoice.

He explained:

“Currently, banks can only detect duplicate financing of the same set of invoices or BLs based on their own databases.”

“Within the stipulated time, if the funding source of an invoice is covered by one bank, it is difficult for that bank to detect whether the invoice is covered by another bank.”

Jain pointed out that there is no way for banks to share invoice details as confidentiality is also a concern for all parties involved.

However, Standard Chartered Bank and DBS have begun working together to seek the use of distributed ledgers to simplify and facilitate verification and detect duplicate financing.

Consider Ripple

Despite growing bullishness on “blockchain” among the world’s largest banks, when these institutions use the term they are unclear about what the technology actually is.

To date, most large financial institutions are experimenting with the technology in private consortium settings, and even public announcements emphasize use cases rather than supporting entire experiments with the underlying technology.

However, there is a growing consensus among large financial firms that the distributed ledger technology provided by Ripple is gaining traction, with Standard Chartered revealing that it is not only using the startup’s technology but also buying its consulting services.

Jain said:

“While we have our own in-house experts, we are happy to adopt the skills and learn from the experience of these industry experts.”

Another player is the global information technology company CGI Group, which announced a partnership with Ripple in October 2015.

Last Thursday, Royal Bank of Canada announced that it has been trialing Ripple’s technology for remittances with the help of professional services firm Deloitte.

Cost savings

Jain is confident that applying blockchain technology to trade finance is expected to yield significant returns.

Ultimately, he said that if PoC is used, overall costs can be reduced by reducing users' risk of fraud and losses.

"In addition, due to the simplified process and automated verification process, turnaround time and productivity can be improved, thereby reducing tangible costs."

Still, Jain believes that as the network grows, visibility of all potential fraudulent participants becomes apparent, and the project needs to adopt an open approach.

Jain concluded:

“The more banks that join us, the better we can protect the industry.”