- 30. 03. 2020
In our analogue world, there is the Letter of Credit (LC) that plays an important role in guaranteeing payment and offering financing in international trade. But as the digital transformation of everything gathers pace, the trade finance landscape is evolving. The international trade industry is desperately searching for a new digital version of existing payment obligations and undertakings.
During the last few years, the Bank Payment Obligation (BPO) took the first important step to move from paper to data. But the rise of new technologies and requirements for digital enhancement have increased the appetite for a next-gen irrevocable payment commitment that is fit for a digital age. In the world of trade finance, many believe that we are approaching the most significant opportunity to revolutionize the letter of credit.
With SWIFT’s Trade Services Utility (TSU) and BPO posed for some major changes*, there are challenges and opportunities in equal measure. While searching for an upgrade in the wiring of trade finance, the real-time digital evolution in the industry is beginning to take shape.
However, the industry’s current approach is missing the final piece of the jigsaw and creating as many problems as it set out to solve. Many of these new networks are the equivalent of a digital island that cannot connect or transact with others out of the box. Resource intensive bespoke integration work is not practical, generating additional risks, and taking the industry backward.
The good news is, there is a new kid on the block in trade finance, which is called Payment Commitment that is providing a unique solution for banks and their corporate clients. The new trade finance instrument, offered by the Marco Polo Network, secures payments against the successful matching of digital trade data.
“Marco Polo is an innovative, high potential project which uses Enterprise Blockchain technology for trade finance transactions. Enterprise Blockchain technology will make trade finance transactions more efficient and more secure. Its use is further demonstration of Bangkok Bank’s commitment to applying advanced technology and innovation to our international trade finance so we can provide faster and secure services to meet our customers’ current and future needs.”
Mr. Charamporn Jotikasthira – Executive Director
Marco Polo has quickly become incredibly influential in trade finance with over 30 international banks on board and numerous of their key corporate clients. Trade finance is ripe for disruption, and this is attracting an increasing number of blockchain networks looking to transform the market. The Digital Trade Standards Initiative (DSI), spearheaded by Marco Polo and now managed by the International Chamber of Commerce (ICC) is on a mission to create open trade and technology standards whilst promoting interoperability between these new blockchain-based solutions.
The objective is to ensure that there is one single version of the truth based on digitized trade finance data at any given time. This can be achieved by automating the matching process between purchase order, invoice, shipment, and other trade data.
Technology has created an on-demand economy, which is dramatically increasing the expectations of both customers and businesses. As the lines between B2C and B2B begin to disappear, Marco Polo’s Payment Commitment solution is speeding up trade finance to ensure faster-assured payments.
However, it is also bringing greater trust and transparency into the industry by enhancing the data with other trade-related data feeds. By enabling greater visibility, it is creating new opportunities to reduce any potential discrepancies that may arise from ambiguities in the terms and conditions of trade contracts.
“The global MP network offers great potential to lead Trade Finance into the digital age. We will see possibilities to exchange trade data and to enhance processes in a very effective way by using DLT technology. The Marco Polo Payment Commitment will enable us to meet our corporates’ needs for digital development in regards of payment assurance and financing. Similarly, we see valuable possibilities to enhance digital end to end communication and to obtain relevant trade data from additional stakeholders and networks for increased transparency of supply chains.”
Mr. Enno-Burghard Weitzel – Global Head of Trade Finance Products
Many unnecessary problems occur when handling paper-based documents. The time-consuming formalities of archaic processes that lead to unnecessary costs can now be avoided. The manual checking of papers and the discovery of discrepant documents can also cause payment delays whilst ambiguities on the LCs documents can cause payment disputes. There has to be a better way.
Rather than accepting these pain-points, Marco Polo has set its sights on making Trade Finance solutions fit for a digital age. A more transparent, smarter, and better-connected infrastructure that reduces operational costs and risks associated with international trade is not just a pipe dream.
It is already possible to converge the physical, information, and financial supply chains with optimized use of digital trade data. Removing industry pain-points and making it easier to access credit while increasing transparency and automation requires the industry to upgrade their mindset as well as their technology. It’s time to think bigger and embrace the opportunities that a global digital platform can offer.
A digital mindset can increase revenue opportunities by connecting efficiently with corporate clients and getting access to real-time trade data for providing advanced payment assurance and financing. The main objectives of the Marco Polo Network for corporates are the reduction of administrative costs and risks in using traditional trade and working capital finance solutions.
S-Servicepartner Berlin GmbH
“The digital change in Trade Finance has only just begun. But we are strongly convinced that Marco Polo’s “Payment Commitment” has the potential to replace the letter of credit as we know it today to a large extent in the future.
As the major central back office service provider within the Sparkassen-Finanzgruppe, we have already been able to test the Marco Polo Trade Finance platform extensively and also involve savings banks and their customers. The feedback from our partners confirms us in the highest degree and shows us that we are on the right track as an active partner in the Marco Polo network.“
Mr. Robert Seelen, Head of Services for International Business
The future of trade finance will look dramatically different than it does today. Trust and transparency by using blockchain networks is already becoming the disruptive and most valuable asset as this new decentralized structure focuses on connecting stakeholders of the diverse trade ecosystems and creating efficiency through end to end digital data processing along the corporates’ supply chains.
Marco Polo is building a single access channel that will connect to existing and new financial institutions with a broader range of financing opportunities. Those that continue to build success on business models of the past and refuse to go on a journey to a more transparent, smarter, and better-connected world of trade finance could find themselves getting left behind.
Sumitomo Mitsui Banking Corporation (SMBC)
“We are really excited to see Payment Commitment on-boarded to Marco Polo! Together with Receivables Discount and Payables Financing, Marco Polo now have comprehensive coverage and principal products in the areas of both Traditional Trade Finance and Open Account Trade.
This wide range of offering will be attractive to global trade customers and we believe Marco Polo is now another step closer to commercialization. SMBC would like to continue to work with Marco Polo member banks to lead trade finance to the next generation through providing value added services powered by blockchain technology.”
Mr. Masa Hasegawa, Managing Director & General Manager of Global Trade Finance Department
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