ING has issued its first fully digital letter of credit (LC) using blockchain trade finance network Contour to Genesis M, a subsidiary of Zenith Steel Group.
Singapore-based Contour uses R3’s Corda blockchain software to digitalise what has been a largely manual, inefficient and costly process. By tapping on Contour’s platform, the digitalisation of LC issuances enables ING to cut settlement time, reduce paperwork and streamline complex trade processes.
Multiple pilots previously conducted at ING showed that time spent on processing letters of credit was cut from the usual five to 10 days to under 24 hours.
In this landmark ING transaction, the acceleration of the LC process enabled Genesis M to receive the required raw materials for production much faster. Genesis M’s spokesperson said, “Going digital helped us to achieve a shorter production turnaround time, and we managed to reduce our operational hours by at least 50 percent”.
ING will now offer this digital LC capability to its clients in the trading hubs of Singapore and Hong Kong, helping them pivot towards digitalisation to future proof their business.
Cindy Toh, head of commodities, food and agriculture for North Asia at ING said, “It is obvious the pandemic and recent geopolitical events have caused, and continue to cause, colossal disruptions to global supply chains and trade logistics. By digitalising the letters of credit process, we hope the cost efficiency and time savings will help our clients manage the challenge a little more smoothly”.
She added, “Global world trade in 2021 was estimated to be around $28.5 trillion. We believe around half of the volume was conducted by LCs that means the potential cost savings we’re looking at is at least $2.85 trillion”.
Beyond the time and cost savings, Contour’s blockchain-based platform provides an environment for partner banks and their customers to transact safely, securely and transparently, and reduces the opportunity for fraud and forgery. The success of this transaction further reinforces the viability of blockchain as an alternative to conventional exchanges of paper-based documentation.
Contour was co-founded by ING and seven other banks in 2018. Following live pilots in 14 countries and a global trial with more than 50 banks and corporates, Contour successfully demonstrated that LC processing times were reduced by up to 90 percent. It was later fully commercialised as an independent entity in 2020.
Carl Wegner, CEO of Contour said, “The success of the first digital LC transaction for ING speaks volumes about the full potential of using distributed ledger technology in the trade finance ecosystem. This validates Contour’s ability to simplify complex processes seamlessly and securely. The information shared on our network is immutable and cannot be manipulated, thereby bringing trust and transparency to all parties involved. We are excited to further scale up this offering together with ING in the next few years”.
Apart from Singapore and Hong Kong, ING is looking at the further implementation of digital LCs in trade finance hubs across Europe and the Americas.
Re-disseminated by The Asian Banker