Trade financing redefined using blockchain technology
A case study
Deloitte is the first advisory firm to help its client perform a real-life banking transaction using blockchain technology in India.
In domestic and international trade finance, Letter of Credit (LC) is one of the most tedious documents to process. The time involved in completing the process deprives exporters from utilising the sale proceeds efficiently. Verifying, approving, and documenting LC takes time, given that multiple parties from different countries with varied regulatory frameworks are involved in the process.
A first-of-its-kind engagement
An Indian private sector bank wanted to reduce the time taken for issuing an LC and perform a real-life banking transaction using blockchain technology. This would not only eliminate duplicity of data but also integrate data to a central cloud-based access system for participants in a transaction.
Through this Proof of Concept (PoC), Deloitte has built an asset which is flexible, scalable, and robust in design. For the bank, the purpose of the PoC was to showcase the applicability of blockchain in trade finance and test its ability to seamlessly integrate with the legacy infrastructure.
A first-of-its-kind engagement for Deloitte India, this project was done in close conjunction with the US, Irish, and Canadian member firms. During its course, the team at Deloitte helped the bank reimagine its LC issuance and fulfilment model. It developed a permissioned blockchain solution based on the Ethereum platform which leveraged an existing prototype called Mercury.
An innovative solution
Using the platform built by Deloitte, cross-border LC transactions were conducted successfully between the bank and one of the largest global financial services providers in Singapore. This helped the bank reduce the time taken for issuing an LC significantly from 20-30 days (as has been the industry norm) to a few hours and provided an unprecedented visibility to all involved stakeholders. Having tested the process end-to-end, the bank now intends to roll this out to all its transaction banking customers.
The solution offers the core benefits of blockchain technology, such as real-time processing, automated smart contracts, and transparency across the value chain. It can be extended to areas beyond international trade finance, namely, marketplace model for trade finance processing, integration with global payments solution, and de-centralized document management system. Overall, the solution is a means to enrich customer experience with reduced cost and turn-around time and better transparency.
An impact that matters
For Deloitte, the engagement is expected to build thought leadership in this space and provide us with an opportunity to test our blockchain capabilities to solve real-life business challenges and help clients reimagine their processes. As the solution design is client agnostic, the blockchain platform could be tailored for use for any client in other countries, or it can be used to enable collaboration between multiple clients from different geographies on a single platform with distributed ownership rights.