Blockchain platforms see Covid-19 trade finance opportunity

Distributed-ledger technology-based transactions are slowly becoming more commonplace in trade finance.

Last month, Turkey’s Isbank became the first financial institution in that country to use the technology for a trade-finance transaction, for instance.

An interesting emerging platform is Russian-based Factorin, which has processed transactions with a total value of approximately $600 million since it launched in June 2019.

Chief executive Andrei Maklin says Factorin now has more than 500 active users – including 31 banks and two of the top five retailers in Russia.

Andrei Maklin, Factorin

“So far, most of the companies using the platform are retailers,” he says, “but we are seeing a growing trend of companies from other sectors, particularly telecoms, oil and gas and metallurgy.”

Russian SMEs have been reluctant to use trade finance in the past due to the lengthy process of onboarding, high levels of rejection and unfavourable rates.

A survey conducted by Russia’s Association of Factoring Companies last year found that 94% of small businesses did not even consider applying for trade financing.

More users

However, Maklin says perceptions are changing and that the company hopes to replicate its domestic growth across other markets with the launch of a pan-European platform.

“We plan to partner with local experts where we provide the technological expertise,” he says.

Souleima Baddi, CEO of blockchain commodity trade finance platform Komgo says his platform now has more than 1,000 users and has issued more than 22,000 letters of credit and standby letters of credit.

In May, Contour announced the completion of a deal between Baosteel and Rio Tinto, which was supported by Chinsay, DBS Bank, essDOCS and Standard Chartered Bank. This marked the first fully integrated paperless trade for Rio Tinto with a Chinese counterpart.

The following month, Contour and DBS Bank completed the network’s first fully digital end-to-end secured letter of credit between Nanjing Iron & Steel, Singapore Jinteng International and Hope Downs Marketing Company.

Banks and corporates are looking to find a digital solution to future proof themselves should [the pandemic] situation occur again. It’s not just about solving the problem now but building resilience

 -Carl Wegner, Contour

“Covid-19 has forced trade finance organisations to consider alternative solutions for conducting their business,” says Contour chief executive, Carl Wegner. “Banks and corporates are looking to find a digital solution to future proof themselves should this situation occur again. It’s not just about solving the problem now but building resilience into the system to solidify business flows.”

Open account trade has adapted quickly and in April Bolero experienced a spike in the use of electronic bills of lading, up 46% from the same period last year.

Jacco De Jong, Bolero

These bills reduce delays for counterparties by dispensing with paper, but are also a critical security as both a contract for carriage and a document of title.

“Their use gives all parties to a transaction more confidence and accelerates payment,” says Bolero’s head of global sales, Jacco De Jong. “On average, a letter of credit with an electronic bill of lading is made available for surrender in six days, defying the continued global restrictions arising from the pandemic.”

Slow progress

Progress appears to be slower elsewhere, though. For example, a spokesperson for the Hong Kong Monetary Authority says the eTradeConnect consortium was still exploring the establishment of cross-border linkages with similar trade-finance platforms in mainland China.

A memorandum of understanding was signed between Hong Kong Trade Finance Platform Company Limited (the operator of eTradeConnect) and Shenzhen Fintech Institute (a subsidiary of the Institute of Digital Currency of the People’s Bank of China) in November to conduct a proof-of-concept trial connecting the two platforms. 

“Banks are working on platform enhancement work, including preparing to connect the platform to overseas platforms,” the spokesperson says. “Until such cross-border linkage has been established, it is premature to announce specific transaction numbers.”

David McLoughlin, head of commercialisation at we.trade, says that in the second half of this year banks will start to onboard at least 10% of their client bases onto the platform, but declined to identify the institutions or potential sums involved citing confidentiality.

We.trade’s shareholder banks include CaixaBank, Deutsche Bank, Erste Group, HSBC, KBC,  Nordea, Rabobank, Santander, Societe Generale, UBS and UniCredit.

McLoughlin confirms that the platform laid off a number of people in technical and product roles recently due to changing resourcing requirements, but says it has not changed its fundraising plans for this year.