Distributed ledger technology finds application in trade finance
Standard Chartered Bank, DBS Bank and Infocomm Development Authority of Singapore have built a novel trade finance solution based on distributed ledger technology. The solution, which has so far been developed only as a proof of concept, allows for digitization and tracking of trade invoices, with a goal to reduce the risk of duplicate invoice financing.
17 Dec 2015 | Piotr Zembrowski
Standard Chartered Bank, DBS Bank and Infocomm Development Authority of Singapore have built a novel trade finance solution based on distributed ledger technology.  The solution, which has so far been developed only as a proof of concept, allows for digitization and tracking of trade invoices, with a goal to reduce the risk of duplicate invoice financing.  
 
Invoice financing offers customers working capital bridges between the point of sale and the point of payment by issuing short term loans against payable invoices.  The common risk in the industry today is that an invoice can be presented for financing to multiple banks and may result in two or more loans issued against it.
 
"If I have an ability to check if this invoice is genuine and not submitted somewhere else, and not financed by some other bank, and yet preserve the commercial confidence of the relationship, that's the kind of problem we're trying to solve," says Shirish Wadivkar, head of payables, receivables and flow FX at Standard Chartered Bank.
 
The solution implements digitization of an invoice, tracking its status and an ability for third parties to access the data.  The participants will be able to access a single source of information on the status of invoices seeking financing, while preserving client and commercial confidentiality. The actual process of financing and payment of the invoice is not part of the solution. 
 
The proof of concept utilizes Ripple, developed by San Francisco, California - based Ripple Labs.  The technology is akin to blockchain, which powers the Bitcoin, in its implementation of an open, distributed, unique, public ledger.  It differs from blockchain in the mechanism of reaching the consensus on the status of the ledger, which underlies the trust in the integrity of the ledger's data.  
 
Today, the solution is limited in its commercialization ability, says Wadivkar.  "We want more banks to join us," he says. "Next step is to make it wider... bring parties who are neutral to the process, like customs or shipping companies," he says.  The goal is to "create an ecosystem in Singapore that improves its standing as a trade centre," he adds, "and then take it global."

    

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