Corporate and Investment Banking
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Website address: cib.barclaysafrica.com
Innovation in Blockchain trade finance deals
Barclays Africa becomes the first organisation in the world to execute a live trade transaction using Wave Blockchain technology
In what will take its place in the history books of the financial services and financial technology (FinTech) industry, Barclays executed the first ever live trade transaction using Blockchain technology in September 2016. The pilot with start-up Wave, Barclays UK and Barclays Seychelles marked a world first both in international trade and the Blockchain space – ultimately signifying the start of a new chapter in the Blockchain community, where experimentation is replaced with implementation.
The underlying trade flow, originated in the UK, involved a documentary letter of credit covering the shipment of dairy products between a Barclays Seychelles client, the Seychelles Trading Company as the importer, and Barclays UK client Ornua – formerly known as the Irish Dairy Board – as the exporter. What makes the deal so ground breaking is the fact that while the letter of credit was both issued and settled the traditional way, which is lengthy as a result of having to deal with multiple parties across jurisdictions, the actual trade documentation was submitted and sent using the Wave application with the ownership of the Bill of Lading on the Blockchain
Wave comes with widespread advantages, perhaps the most critical of which are its simplicity, security and speed. Countless organisations have attempted to implement solutions that remove paper from the trade process. It has typically failed because digital documentation comes with the associated risk of lack of proof of origin and ownership. Multiple PDFs, for instance, can sent across the entire value chain, making it difficult to identify the original; Wave has addressed the issue through its use of distributed ledger technology.
As a result of its incorporation of distributed ledger technology, the Wave application allows all stakeholders on the supply chain to receive, send and track a digital Bill of Lading – a detailed receipt of a ship’s cargo – as well as upload and send related documentation.
Building efficiencies in trade finance transactions
Its use of Blockchain technology makes it highly secure as it records and verifies the ownership of the documents and therefore the goods related to the trade. It also makes the transaction extremely quick. The Wave Blockchain-powered transaction only took approximately four hours, as opposed to the 10 days normally seen with similarly structured trade transactions.
Use of the application has already shown the impact it has on international trade, but it is set to continue to influence how trade finance transactions are carried out. It streamlines the supply chain process significantly and, as such, drives efficiencies in the global trade and banking industries. The deal, for example, represents a massive step forward for the banking sector: it means that risks are reduced as documents will be harder to forge and financing of trades will be processed and executed in a much shorter time frame. It will further drive savings around courier fees, handling fees and storage for all parties.
Global trade processed using Wave Blockchain technology ultimately enables better data collection. As it currently stands, the fragmented nature of supply chains and the manually intensive process of registering trade movements make data on international commerce estimates. With better data, further efficiencies can be applied – on routes, methods and trade opportunities.
What is most exciting about the deal is that the Wave Blockchain journey is only currently in the starting blocks – meaning that there are numerous developments still to come. Barclays Africa’s strategy is to conduct multiple pilots with different banks and external parties across various regions in Africa and further afield – and as a result gain adoption and uptake of the technology in a more organic manner.
In order for greater uptake to become a reality, however, the wider trade industry will need to adopt the application. This is no mean feat as there are a plethora of players and service providers in this industry that operate across the globe.
Facilitating greater global uptake in Blockchain technology
Although gaining market share in a highly competitive market is no doubt a daunting task, what sets disruptive and innovative solutions such as Wave Blockchain technology apart and drives their uptake is their ability to impact positively on the bottom line. According to research carried out by the Global Alliance for Trade Facilitation, seven percent of the global value of trade is absorbed by the cost of documents alone, making the significant cost and time savings just one of the reasons for stakeholders to adopt the solution.
What’s more, there are plans to incorporate the Wave solution into the Letters of Credit and Collections process. This will create an overall more seamless client experience as it creates greater efficiencies in the Letters of Credit and Collections value chain – primarily because the verification and endorsement involved in the transfer of documents takes between two and five days rather than the more traditional 10 days.
Another compelling reason for greater uptake of the technology is the growing evidence of the ability to employ the technology in wider sectors. It can be adapted for any form of documentation that needs to track and verify ownership – which effectively opens it up to a wide variety of use cases in not only banking, but insurance and law, among others.
The deal is a historic moment for the bank and a prime example of how the bank is partnering and commercialising FinTech start-ups that have grown out of the Barclays accelerator programme – Wave is Blockchain-based supply chain start-up that was part of the TechStars FinTech accelerator.
Blockchain has been recognised widely for the opportunities it presents, particularly in the financial services field. The technology has the potential to transform how trade finance transactions are carried out and completed. It can help prove the authenticity and originality of documents, reduce risks, costs and the likelihood of fraud and enhances the user experience.
It is for this reason that Barclays has invested significantly in developing solutions in Blockchain technology over the last few years. Barclays was, for instance, part of the original group of banks to join the R3 consortium designed to spearhead crypto technology solutions in financial services and also was the first big bank to form a partnership with a digital currency firm, Circle, facilitating social payments on the Blockchain using Circle's payments app.
The Barclays Trade team is committed to providing its clients with cutting edge solutions to manage transactions and cash flows, accelerate their working capital cycles, fund growth, reduce risk and encourage global trade flows. Blockchain technology is an innovative way to not only diminish risk and speed up the processing of documentation in the trade cycle, it also leads to substantial savings – making it an effective way to manage trade finance deals. Barclays will therefore continue to develop its Blockchain solutions in order to support the continued digitisation of trade and drive long-term efficiencies and savings for its clients.