Transforming trade through hybrid blockchain solutions

Trade finance is a niche area of banking that most people are only vaguely aware of because it is part of the bank’s back-office operations. When a corporate customer needs a letter of credit, the bank’s trade finance team gets involved. Often, the process begins with a basic request between a buyer and a seller and then grows into a complicated and paper-intensive activity. Unfortunately, the process is often a headache—a source of delay for the buyer and seller—and for the bank.

Customer service departments at banks are all too familiar with just how painful, costly and frustrating this process can be for customers. Despite this, banks have made very few changes to the letter of credit process in hundreds of years, except for the removal of wax seals and delivery by horse or foot!

I wish I were exaggerating, but I’m not. As director of CGI’s Trade Innovation Lab, my team and I decided to address the letters of credit process more than two years ago because of the vast volume of complaints. We realized nearly any type of improvement would likely be welcomed and deliver a solid value proposition. In addition, when we looked at our own CGI Trade360 SaaS solution and its robust set of letter of credit product offerings, we knew any improvements would significantly benefit our clients. The team starting experimenting and designing with blockchain and distributed ledger technologies (DLT).

We began earnestly developing a proof of concept (POC) and shared it with CGI Trade360’s client banks. Four banks became involved in this journey, along with a FinTech—the U.S. blockchain innovator Skuchain. We worked hard, bonded over many late nights, and successfully completed three project phases from 2016 to 2018.

Altogether, we demonstrated end-to-end streamlined processes for digital trade—from sales agreement creation (smart contract), to letter of credit applications, to issuance/advisement, to document presentation, to bank examination, and ultimately to payment and payment notification. In addition, we demonstrated how the instantaneous delivery of electronic documents reduces the in-transit time required for a typical standby letter of credit (SBLC) cycle time from an industry average of seven days down to minutes!

Our POC points the way to an end-to-end, holistic solution between a corporate customer’s business-to-business (B2B) platform and the CGI Trade360 trade services platform. It also demonstrates how banks can treat 40+ trade finance products as smart contracts. The ultimate goal of the interoperable B2B platform is to offer corporate customers greater visibility into their supply chains, while ensuring accountability through a complete and unalterable audit trail of end-to-end processes.

The CGI Trade Innovation Lab looks forward to witnessing how hybrid blockchain solutions will drive major efficiencies to the global trade supply chain via a fully digitalized, transparent, trackable process flow. At the same time, these emerging technologies largely will be “layered on top” and leverage existing legacy and transactional processing systems.

What this means is that banks, governments and corporates will not only benefit from leading-edge technology and innovative solutions, but also be able to leverage their existing investments, including current operating models and staff. Regulators, CEOs, CFOs and other stakeholders will be most pleased with this because a massive system overhaul can be expensive and take a lot of time.

Overall, we have discovered that the combination of several new hybrid technologies will help transform how trade finance back-office support teams keep their customers—and other stakeholders—happy. It is an exciting time, indeed!

To learn more about our work in this area and its potential benefit to your own organization, feel free to contact me.