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Banks run trade finance pilot on Marco Polo blockchain

German banks LBBW and Commerzbank have announced the successful completion of their first pilots on the Marco Polo trade finance blockchain network.

The data transfer for transactions between German multinationals, engineering technology company Voith and pump and valve manufacturer KSB SE were carried out digitally.

The Marco Polo international trade finance network has 17 member banks, with Commerzbank among its founders and LBBW joining last year. Based on R3’s Corda blockchain technology, the blockchain-based network has trade finance e open platform TradeIX as the technology provider and network operator.

Last month Japan’s Sumitomo Mitsui Banking Corporation executed a proof of concept on the network.

Pilot details

The LBBW and Commerzbank pilot involved two trade finance aspects, a payment commitment from the buyer’s bank and trade finance by the supplier’s bank.

The transactions involved hydraulic couplings being sent from Germany to China and pumps being delivered within Germany. The parties agreed on order and delivery details via the Marco Polo network and a conditional payment commitment from the buyer’s bank – the condition being that the goods were delivered to the buyer’s satisfaction.

Once the delivery details were entered, they were automatically matched with the agreed conditions triggering an irrevocable payment obligation similar to a bank guarantee from the buyer’s bank. In addition to the certainty of payment, the supplier’s bank also provided financing using the Marco Polo network.

The key benefit of the network is to automate much of the process by reducing reliance paperwork. “It will make transactions faster, easier and more secure,” said LBBW board member Dr. Christian Ricken. “Not only are we breaking new ground in terms of technology, but also in the cooperation between banks and businesses.”

Future tests

Future tests will involve enterprise resource planning (ERP) integration with customer systems, so the data is pulled directly from their back office functions. There are also plans for integration with transport and insurance providers.

“The cooperation with LBBW and Commerzbank offers us an opportunity to actively shape and incorporate the company’s perspective into the further development of the products on offer – here the payment commitment,” said Gerald Böhm, Voith’s head of guarantees and trade finance.

Nikolaus Giesbert, divisional board member for trade finance and cash management at Commerzbank added: “The transaction proves that blockchain technology offers our clients a payment undertaking and state-of-the-art financing for trade transactions with both foreign countries and domestically.”

Commerzbank has already been active in the blockchain sphere and is working with the German innovation group Fraunhofer IML to explore the future of exports and trade finance. Earlier this year it executed two money market tests, with Deutsche Börse and with Siemens and Continental.

LBBW also has some blockchain pedigree. In mid-2017 it worked with Daimler for a €100 million ($88m) “corporate Schuldschein”, similar to a bond, while last month it executed a money market transaction using R3’s Corda.


This item appears in the following sections:
Trade Finance
Dealing & Trading Platforms
electronic Bank Account Management
Europe

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