Wed, Jul 15, 2020 – 11:30 AM
UPDATED Wed, Jul 15, 2020 – 12:41 PM
EFFORTS to digitalise trade finance are taking shape amid renewed questions over fraud in trade finance, with DBS and blockchain trade-finance network Contour sewing up the network’s first digital end-to-end secured letter of credit (LC).
Announced on Wednesday, the transaction was made between Nanjing Iron & Steel, Singapore Jinteng International and Hope Downs Marketing Company – an equal joint venture between Rio Tinto and Hancock Prospecting, said DBS in a statement.
This is the bank’s second transaction on Contour’s network since it became a member bank in May.
As the issuing and advising bank, DBS had connected the parties across the mining value chain, while Contour’s partner essDOCS enabled the management of the electronic bill of lading through its CargoDocs solution. The approval of key contract terms, LC issuance and presentation of export documents under the LC were carried out electronically from start to finish on the Contour network.
Contour is expected to be fully launched by the end of this year. It digitalises global trade processes such as the creation, exchange, approval and issuance of LCs. Its aim is to increase the accuracy of LCs issued, with real-time tracking of transactions on the platform that is accompanied by a full audit trail for greater transparency.
“This not only resulted in reduced trade document turnaround times but also provided greater transparency with all parties having access to real-time status updates at each step of the transaction,” said DBS.
By providing a “neutral and open network”, Contour is able to offer its solution to a wide range of financial institutions and corporates, allowing individual technology providers to integrate within its network to further streamline LC issuance.
Carl Wegner, Contour chief executive, said: “With yet another transaction pair on our network, we are showing the full scope of what a blockchain solution can offer to trade finance. This is a hugely positive sign of a changing industry – organisations are taking advantage of our technological solution and using it to transform a previously paper-based process that is outdated and unfit for purpose in the modern world.”
Sriram Muthukrishnan, DBS group head of trade product management, said: “The silver lining arising from challenges faced in the current environment is a rapid acceleration and acceptance across all industries and geographies of the need to digitalise to survive and thrive in the ‘new normal’, and we expect to see more companies transitioning from analogue-based trade finance processes to digital ones in the near future.”
This comes as blockchain technology has returned to the spotlight as a way to prevent fraud in trade finance.
The collapse in oil prices and the Covid-19 outbreak had exposed questionable practices in the Singapore oil trading industry. Oil trading giant Hin Leong was found to have hidden about US$800 million in losses, while another oil trader ZenRock Commodities has been accused by its creditors for transactions that have been alleged as “dishonest”.
More broadly, banks with operations in Singapore are now banding together to raise industry standards for commodity financing in Singapore. Singapore authorities told The Business Times this month this will be the first such set of “best practices” being developed by lenders here with the trading community, with the support of government agencies.