- Investment Areas
From Global Trade Review (GTR) | By Finbarr Bermingham
HSBC and ING have conducted their first live, commercial trade finance transaction on blockchain, for agrifood trading giant Cargill.
The deal was completed using the R3 Corda platform, with a cargo of soybeans exported from Argentina to Malaysia.
Cargill was the exporter and importer on a deal that saw Cargill Geneva selling soybeans on behalf of Cargill Argentina, and Cargill Singapore buying the goods on behalf of Cargill Malaysia.
It was done using the letter of credit (LC) module of Corda, which has been developed by 12 banks. This enabled the transaction time to be reduced from a standard five to 10 days, to 24 hours. The LC was issued by HSBC, with ING acting as the advising bank. The value of the transaction has not been disclosed.
While the LC was executed on blockchain, other elements of the transaction cycle – such as the bill of lading – were not.
Vivek Ramachandran, HSBC’s global head of innovation and growth for commercial banking, tells GTR that we can expect to see another few live transactions on this platform, as the bank learns how it interacts with the systems of other banks and corporations. However, the primary focus now will be on driving industry-wide adoption.
“We’ve still got a few more steps to do before we get to widespread adoption,” Ramachandran says. “A lot of people have been wanting to make sure that it works with a live transaction. That’s part of the reason this is exciting, to be able to demonstrate that a live commercial transaction with a flagship global trader and two global banks on each side of the transaction, actually works.”
While this is arguably the most advanced trade finance development on blockchain to date, the industry has a couple of years-long history of trialling the technology, with the hype at times reaching deafening levels.
In late-2016, Commonwealth Bank of Australia and Wells Fargo closed a US$35,000 transaction for two subsidiaries of Brighann Cotton, taking 88 bales of cotton from Texas in the US to Qingdao in China, using Skuchain’s Brackets blockchain-based solution.
Since then there have been a plethora of pilots, trials and proofs of concepts, but general frustration in the industry that nobody is bringing blockchain technology to operational trade finance. There have been signs over recent months, however, that this is getting closer.
Batavia, a blockchain-based trade finance platform developed by IBM and a consortium of five banks, completed its first live transactions with corporate clients in April and is thought to be close to commercial use.
we.trade, a European platform for managing, tracking and protecting trade transactions between SMEs, backed by nine banks, is aiming to launch to business clients in the third quarter of 2018.
In India last month, meanwhile, a government-backed invoice financing platform went live with a blockchain-based solution that allowed the various companies involved to share information to prevent double financing via blockchain. However, there is no financing element to this product.
The news comes two months after HSBC’s senior innovation manager, Joshua Kroeker, told GTR that the bank was ready to do live trade finance transactions on blockchain.
The bank had been involved in one of the earlier blockchain projects for trade finance when it worked with Bank of America Merrill Lynch and the Infocomm Development Authority of Singapore (IDA) on a proof of concept to mirror letters of credit using distributed ledger technology.
However, its work on the Corda platform has apparently accelerated beyond its other blockchain developments.
Corda is a platform owned by R3, a US company founded by David Rutter, with members including more than 200 banks, financial institutions, regulators, trade associations, professional services firms and technology companies.
In April, an application for syndicated loans called Fusion LenderComm became the first to go live on the Corda platform. The app had been piloted by banks including BNP Paribas, BNY Mellon, HSBC, ING, Natixis and State Street. It had been developed since early-2017 by fintech company Finastra and R3.
ING has also been heavily involved in the trade-based developments on blockchain technology. As well as being among the banks working with Fusion LenderComm, it was reported to be working with trading house Mercuria and French bank Société Générale to build a blockchain solution for oil trading, early in 2017.
The bank’s managing director for innovation in wholesale banking, Ivar Wiersman, says: “It’s exciting to see this transaction has been completed successfully with clear client benefits in speed and ease in execution.”
The post HSBC and ING complete live trade finance transaction on blockchain appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Finbarr Bermingham
Economists at National Australia Bank (NAB) have downplayed the impact of trade tariffs between the US and China, saying instead that the key battleground will be technology and intellectual property (IP).
Tariff barriers may “shave a few percentage points off global GDP” in the very worst case scenario, but are relatively immaterial in the grand scheme of things, Christy Tan, head of markets for Asia at NAB, told a press conference in Hong Kong yesterday.
“The trade deficit and US$200bn [to be cut off the US trade deficit] by 2020 is just a number. At the end of the day, if China is not buying from the US, it’s buying from Brazil, or South Korea, for instance. If the US is not buying from China, it’s not going to just manufacture locally, it will shift its demand to India, Sri Lanka, etc. The key issue is technology and IP.”
China is looking to increase its role as an important player in tech industries such as electric vehicles and artificial intelligence (AI).
President Xi Jinping has clearly laid out plans for China to become a leader in innovation, spearheaded by the “Made In China 2025” initiative to upgrade the country’s industry. It’s been described by the Council on Foreign Relations as “the real existential threat to US technological leadership”, but according to Tan, it is “not up for negotiation”.
Meanwhile, the US has long harboured concerns over China’s alleged IP theft, as well as its heavy government support for such industries.
Dinny McMahon, a fellow at the MarcoPolo programme of the Paulson Institute and author of the recent book China’s Great Wall Of Debt, tells GTR that China will replicate the heavy subsidies it applied to traditional industries in the technology space over the coming years.
“China’s vision of how it becomes a rich nation, how it builds new drivers of growth, is a big bet on new industries: robotics, electric vehicles, semiconductors. It wants a forced march to become a global leader in those industries, and that requires the same techniques it applied to heavy industries in the past,” he says.
These opposing stances appear to place the superpowers on a path for further collisions.
The US has already hit Chinese smartphone maker ZTE with paralysing sanctions, barring it from importing from US companies. As a result, China’s second-largest telecoms company has this week been forced to halt major operations, after being banned from purchasing the Google Android software and Qualcomm chips on which it depends.
ZTE was penalised after breaking the terms of previous sanctions laid on after it was found to be shipping goods to Iran and North Korea, then subsequently lying about it.
Huawei, China’s largest smartphone company, appears to be next in the US’ crosshairs. AT&T and Verizon have already dropped plans to sell Huawei phones, amid allegations of stolen IP, while it is also alleged to be under investigation for flouting US sanctions on Iran.
The US government has also blocked the sale of a number of US companies to Chinese buyers, including the proposed takeover of Moneygram by Alibaba-owned Ant Financial.
If further sanctions are handed down, Tan expects an immediate retaliation.
“China responded immediately [to ZTE sanctions], by hiking the tariffs on sorghum by 178.6%. China is making its presence felt, sending the message clearly that if you hit tech and IP, there will be retaliation where it hurts quite badly, the US agri sector. Steel and aluminium are small issues in the grand scheme of things. Tech and IP is something that is going to be long drawn,” she says.
As it stands, tit for tat tariffs have seen the US government place levies on products ranging from washers and solar panels to aluminium and steel. In addition to the whopping levy on sorghum, a cereal used in livestock feed, China has retaliated with tariffs on products such as fruits, nuts and frozen pig parts.
In high-level trade negotiations which are set to resume next week, the US is demanding that China cut its trade surplus with the US by more than US$200bn – the logic of which was questioned by NAB analysts at the briefing.
“It’s hard to frame a trade negotiation in that way, trying to put a numerical value on reducing your bilateral trade deficit. They are pretty meaningless things, they’re a consequence of savings and investment decisions by thousands of people. So the idea that you can make it some numerical number by lowering it by US$200bn is not an economic reality. No economist would frame it like that,” said Peter Jolly, global head of research.
The post Forget tariffs, tech will be the key battleground in trade war appeared first on Global Trade Review (GTR).
From Global Trade Review (GTR) | By Finbarr Bermingham
Yes Bank has launched a solution that uses robotics to digitise part of the trade finance payments process.
The tool automates the submission of the bill of entry, an account of traded goods entering the port.
A robotics solution then verifies the documentation, which is submitted digitally, by cross-checking it with the Indian government’s Import Data Payment and Monitoring System (IDPMS) or Export Data Processing and Monitoring System (EDPMS). Payment is then released, with the bank saying it has the potential to reduce payment turnaround time by 80%.
Yes Bank plans to roll the solution out to 2,000 corporate clients servicing markets in China, the US, Singapore, Germany and Hong Kong. The plan is to eventually “extend to other segments as appropriate, eventually to all trade finance products wherever applicable,” Asit Oberoi, global head of transaction banking, tells GTR.
The development comes one year after the Reserve Bank of India launched the IDPMS and EDPMS systems to help digitise trade in India, a move which has been widely hailed as improving efficiency in India.
“This solution would not have been possible without the visionary introduction of the IDPMS and EDPMS by the RBI,” Oberoi says.
It also comes on the back of the biggest financial fraud in India’s history. At a branch of Punjab National Bank (PNB), fraudulent letters of undertaking (LOUs) were used over a seven-year period to skim US$1.7bn from confirming banks overseas.
The RBI has responded by banning the LOU, while the clamour to further reduce the dependence on paper-based solutions among India’s trade finance banks has grown. Oberoi declined the chance to comment on the PNB situation, but did note that “import finance from overseas lenders on an LOU for direct import is not available now”.
Yes Bank claims to be the first Indian bank to digitise this part of the trade cycle, but there have been moves from foreign banks to take advantage of the RBI’s digital agenda.
In October last year, Deutsche Bank launched TradePay, the first paperless import payment solution in the country. The solution uses IDPMS to verify import payments by checking them against details made available by the client on the system, eliminating the need for clients to share any physical documentation.
This followed Citi launching a solution which allows clients to share import payment information with the bank by quoting the RBI’s IDPMS number, without having to share documents. This was launched in April 2017.
In the wake of the PNB fraud, we can expect to see digitisation gain pace. International banks have been reluctant to accept guarantees from import financing Indian banks, which has been choking importers from vital capital.
The post Yes Bank launches robotics tool to automate part of trade finance cycle appeared first on Global Trade Review (GTR).