Today sees the Singapore launch of the trade finance blockchain Contour, formerly known as Voltron, and founded by seven global banks. The letter of credit blockchain has initiated numerous pilots in 14 countries and recently had a global trial involving 50 banks and corporates.
Letters of credit (LoC) are relatively cumbersome and paper-intensive instruments. Typically an exporter won’t ship until the buyer’s bank provides an LoC guaranteeing payment. But to receive the payment, the seller has to complete a significant amount of documentation.
The bureaucracy involved is one of the reasons why LoCs tend to be used by larger organizations. That could change with blockchain. In pilots to date, by digitizing the process, Contour has reduced the time taken from 5-10 days to as little as 24 hours. The group ran a survey, and 86% said traditional LoCs were too reliant on paperwork, and the process is becoming ‘intolerable’ for both corporates and banks.
HSBC’s Global Head of Trade Products and Propositions, Vinay Mendonca, commented: “Clients have clearly seen the value of blockchain technology to digitise Letters of Credit. Besides reducing friction, it helps accelerate the velocity of trade, while allowing them to control their own data.”
The backers of the project are Bangkok Bank, BNP Paribas, CTBC, HSBC, ING Bank, Standard Chartered, SEB, consultants Bain & Company and technology partner CryptoBLK as well as R3.
Samuel Mathew, Standard Chartered’s Global Head of Documentary Trade Product Management commented that Contour “is undoubtedly a significant milestone in our journey towards transforming documentary trade. In particular, we look forward to introducing our smart guarantee capabilities, announced in 2018, into Contour.”
The shareholders are missing one of the former members, Natwest. It’s unclear whether this is a permanent absence or just a timing difference, and we didn’t receive a response in time for publication.
Like many blockchain projects, the launch is relatively ‘soft’. So no banks are live or in production yet, and the network is in beta stage. However, the company has been incorporated in Singapore, which is a feat in itself. The contracts for these sorts of ventures sometimes exceed more than a hundred pages.
The project is based on R3’s Corda distributed ledger technology (DLT). One of R3’s Managing Directors, Carl Wegner, has become the CEO of the new company. Wegner has a background in transaction banking in Asia, spending four year stints at both Standard Chartered and Deutsche Bank.
“The opportunity cost in trade finance is huge. Trillions of dollars in commodities, products and services are transacted daily, but the sector is still characterised by slow, duplicative and expensive processes,” said Wegner.
“With the launch, Contour is now available to provide a full commercial service to organisations looking to enhance their trade finance practices. We are now focusing on scaling the network with more banks, corporates and partners, and look forward to continuing to collaborate with our growing community.”