We have heard much talk of late about blockchain and distributed ledger technology and here is a company which has conducted a successful proof of concept (POC) for standby letter of credit (SBLC) issuance and advising.
Photo of Peter Jameson, Bank of America Merrill Lynch, Henry Byrne and Jayna Bundy, Microsoft.
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Proof that a concept can become reality with blockchain
The inspiration for this solution was born out of solving a practical business challenge: Microsoft was expanding sales to new client segments and markets, requiring payment assurance through standby letters of credit (SBLCs). The legacy processes took days, sometimes weeks, in many instances to issue and advise an SBLC, delaying fulfilment, revenue, and impacting customer relationships.
The bank welcomed the opportunity to partner with a world-class corporate, working hand-in-hand with the treasury team to document each pain point, opportunity, and how blockchain/smart contracts can potentially streamline processes.
In September 2016, Microsoft and Bank of America Merrill Lynch conducted a successful proof of concept (POC) for SBLC issuance and advise using blockchain/smart contracts via Microsoft Azure’s Blockchain as a service (BaaS). At the time, this was the first Azure-based blockchain transaction between a major corporate treasury unit and financial institution. Microsoft provided the blockchain and related technology, and is the corporate treasury “user,” acting as beneficiary of the SBLC.
The objective was to demonstrate that blockchain/smart contracts could streamline the inherently paper-based and inefficient SBLC process by digitising the transaction, and making it available to all parties near real-time in the cloud.
As Jayna Bundy, Director of Treasury Operations explains, “The POC was successful in validating the potential benefits, while also framing the requirements on the journey from proof of concept to pilot, to eventually commercialising blockchain for trade transacting.”
Best practice and innovation
A trade finance application has been built that runs on a cloud framework in a very seamless manner. In essence, the POC followed the same process as a traditional SBLC. The key difference is the largely shortened transaction time and effort involved, as well as the increased transparency by all parties to the smart contract at each stage in the SBLC lifecycle. Historically, this process took days or weeks to achieve, was highly paper-intensive and error prone. Now, all the details are easily accessible in the blockchain ledger and closing the end-to-end SBLC transaction takes a matter of hours, instead of days.
Equally important, treasurers can see all of their exposures in a single glance on screen offering a one-stop-shop that provides holistic visibility for all their SBLC credit decisions and exposures to-date.
Bundy concludes, “This POC is one example of the sustained commitment to collaborate and drive innovation and digitisation. It is a key step in the journey to leverage emerging technology to simplify and improve how companies transact trade.”
Traceability – blockchain creates an electronic stamp that cannot be removed, producing an immutable record.
Platform – facilitating adoption for corporates and banks of all sizes and capabilities, through an “already-in-place” technical infrastructure and reduced technical work required by leveraging the Azure cloud blockchain as a service platform.
Security – blockchain creates unique, permanent IDs for documentation, which ensures authenticity, enhancing the current, bi-lateral paper process, including multiple emails, attachments, and other non-standard communications.
Director of Treasury Operations
Jayna Bundy joined Microsoft in 2005. As Director of Treasury Operations, she is responsible for global cash operations, trade finance, and leads the investment operations team for Microsoft’s US$130bn investment and foreign exchange portfolios. Jayna and her team have been recognised with several industry awards for leveraging technology and innovative processes in Treasury.
Treasury Manager – Trade Finance
Henry Byrne is Treasury Manager – Trade Finance at Microsoft and is responsible for managing the global trade finance business to mitigate credit risk. Henry’s area of focus includes providing global support to credit and risk managers on mitigating customer and sovereign credit risk in the AR process, negotiating and driving implementation of global pricing and service level agreements with partner banks and designing, documenting and executing global securities policies, processes and best practices.
Director – Treasury
As a Director in Treasury at Microsoft, Pankaj Gudimella is responsible for building and executing treasury’s technology roadmap. He is currently working to move treasury applications to the cloud and gain technological advantage in the day-to-day treasury operations. Prior to Microsoft, Pankaj worked on marketing/financial analytical systems for Washington Mutual Bank. He has an MBA in finance from University of Illinois, Chicago.
Principal Program Manager
Guru Kirthigavasan is a Principal Program Manager at Microsoft Treasury. He helps build the treasury applications on the cloud and is responsible for executing data strategy at treasury. As a specialist in business intelligence, he has over 15 years of professional experience in developing and managing large scale enterprise data warehousing and business intelligence solutions. He has a Masters in Computer Science from India and a Tech MBA from US.
Maritta Kallio joined Microsoft Treasury in 2014. As Treasury Manager, she is responsible for trade finance globally. Maritta’s areas of focus include providing global support to mitigate credit risk and to enable sales, streamlining the Microsoft securities management process and negotiating with banks to ensure global service levels. Prior to Microsoft, Marrita worked in trade finance for Nokia Corporation.