Standard Chartered and DBS Group Holdings have announced their collaboration on developing a trade finance invoicing system based on distributed-ledger technology. The innovation could provide an answer to the problem of multiple-invoice fraud, faced by many of the global trade finance banks.
$4 trillion trade finance fraud
The need to create a more secure way of financing global trade has become increasingly pressing since it's estimated that fraud in the trade-financing industry accounts for losses of up to $4 trillion a year. Standard Chartered lost almost $200 million from a fraud at China’s Qingdao port two years ago. Other banks are also looking to create trade finance applications based on blockchain, including Bank of America and HSBC.
The trade finance business has always been paper-heavy, providing opportunities for fraud, and there is therefore demand for a secure and less risky alternative to paper invoices. In a survey last year by the International Chamber of Commerce, nearly one-fifth of banks said they had seen an increase in fraud allegations.
Trialling system in Singapore
DBS and Standard Chartered worked with the Infocomm Development Authority of Singapore on testing the ledger invoicing system. For more details on how the system works, see Bloomberg's description here.
Fraudsters exploit data gap
DBS's Lum Yin Fong, who was involved in the collaboration with Standard Chartered, told Bloomberg: “Because there is no common platform for banks to screen transactions financed by other banks due to confidentiality concerns, there is a possibility that customers may capitalize on this information-sharing gap to obtain financing from multiple banks using the same invoice.”
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