The Marco Polo Trade Finance Initiative aims to develop a fully open-sourced network for trade finance. Angela Koll, Trade & Supply Chain Finance Specialist at Commerzbank provides an update on its progress.
Talk about the impact blockchain can have on global trade is turning into action. The Marco Polo Trade Finance Initiative is developing a blockchain-fuelled trade finance platform for post-shipment financing that has recently moved into the pilot stage following a successful proof-of-concept.
The initiative, headed up by R3, Trade IX and several major global banks including BNP Paribas, Commerzbank and ING, formed with the objective of making trade finance smarter, more transparent and better connected. Since its launch, several other major banks have joined including Barclays, DNB, Standard Chartered and Wells Fargo.
“The aim of the Marco Polo Trade Finance Initiative is to develop seamless, real-time, end-to-end connectivity between trading counterparties in a way that removes the ‘siloisation’ of information that causes the flow of trade to be inefficient,” explains Angela Koll, Trade & Supply Chain Finance Specialist at Commerzbank.
“It is also a chance for us in the banking community to show that we are reacting to the slowly-but-surely growing demand for digitisation in trade – by working in different blockchain projects and investing in research and development in that space to meet the demands for our corporate customers,” she adds.
Primary objectives of the Marco Polo Trade Finance Initiative
Provide a smarter, more straightforward, easy way to integrate technology infrastructure for the entire trade ecosystem.
Standardised trade orchestrations leveraging digital smart-contracts to drive automation and interoperability.
Utilise light, modular and API-driven systems that provide a superior customer experience.
Reduce risk, operational and compliance costs by providing participants real-time visibility into a single source of truth.
Collaborative approach working with many banks and technology companies to provide the next generation trade finance solution.
Provide a secure, global, open business network for trade finance that can be linked to other business networks.
The successful proof-of-concept post-shipment trade financing solution being developed by the Macro Polo initiative uses R3’s Corda blockchain technology and runs on Trade IX’s TiX platform, combining the core elements of trade finance and supply chain finance.
“The solution works by leveraging secure, automated, smart contracts that trigger financing at crucial stages of the supply chain, and the data – corresponding to information on counterparty identities, invoices, purchase orders, credit risk, shipping and logistics – is recorded securely on a single, distributed ledger,” says Koll
“It serves three key areas of trade and supply chain finance: risk mitigation by the provision of payment commitments based on the matching of trade data, payables finance, and receivables finance.”
For corporates and other parties involved in the trading ecosystem, Koll notes that the solution can potentially bring many benefits. “Ultimately, it provides a more realistic way of improving the ecosystem of trade finance, enabling it to become more transparent and visible,” she says. In doing so, banks providing trade financing solutions can more closely align the physical and financial supply chains, to provide finance and liquidity.
“More broadly speaking, using blockchain can enhance the onboarding of corporates and partner banks to support already existing relationships and business,” says Koll. “It can also facilitate the onboarding of additional stakeholder of logistic and insurance industry for increased transparency and new solutions to support trade and supply chain finance.”
To enable this, the collective ambition of the initiative is to expand it in 2018 to include additional banks and third-party service providers such as credit insurers, ERP and logistics providers.
Despite the early success of the Marco Polo initiative, Koll is acutely aware that the hard work is to come. “It is one thing to develop a proof of concept within a closed "test" environment like this. But it is another thing to move beyond piloting and into commercialisation,” she says.
“This is because it depends on securing buy-in from all counterparties active in the trade industry, which is a very complex ecosystem [not only banks and corporates but also regulatory and legal bodies, logistics and insurance bodies]. This will take time and needs industry engagement.”