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Marco Polo’s innovative Irrevocable Payment Commitment breaks new ground

There are now THREE trade finance blockchain-based groups bidding for your trade finance business:

  • Contour (previously called Voltron) which uses the R3 Corda technology and is focusing on digitising Letters of Credit. It is now in Beta test.
  • Marco Polo is a collaboration in which the technology partners are R3 and TradeIX that provides open account trade finance solutions. It goes into full production in Q1 2020
  • We.trade platform which uses the Hyperledger Fabric for its blockchain and IBM as the technology partner and is now fully operational.

All three are progressing in different ways with Contour focusing on digitising Letters of Credit, while Marco Polo is concentrating Open Account trade transactions and related payments, and We.trade are focusing on linking businesses and banks across Europe in one collaborative, transparent and secure environment.

Marco Polo

The Marco Polo Network claim they are a unique solution which differentiates itself from the traditional destination platforms by being a distributed and open network, see figure below:

  • Source & Copyright©2020 – Marco Polo.finance

This brings the following advantages for all of its participants:

  • Data privacy, data is stored inside the participants’ firewall and shared on a transaction basis with only the parties involved in the transactions, e.g. the Marco Polo participants stay in full control of their data
  • Connect-once-to-connect to many – one connection and set-up enables the connectivity to all other Marco Polo participants and transaction on all different Open Account Trade Finance Solutions (Receivable Financing, Payables Financing, Payment Commitment)
  • Apps integrated into the ERP systems  - Companies can transact within their ERP with no costly handling and reconciliation outside their system.

 Marco Polo Payment Commitment solution

The new Payment Commitment module combines some of the features of a Documentary Letter of Credit (LC) and the Bank Payment Obligation (BPO) allowing to meet the needs of open account trade transactions. As a conditional payment mechanism, it is issued to support financing by the buyer or seller bank and facilitates the settlement payments, based on the irrevocable payment undertaking (IPU) of the buyer’s bank towards the seller’s bank. The matching of trade data on the Marco Polo Platform triggers the IPU.

The IPU transaction and the transaction flows are shown in the figure below:

Levels of transaction

  1. Physical: Goods are purchased and shipped to the buyer
  2. Information: A 3-way-match is performed on the Marco Polo Platform taking into account the following data
    • Purchase Order data – Buyer
    • Invoice data – Supplier
    • Shipment data – Logistic provider
  3. Financial: Financing is provided by banks upon successful matching of trade data
  1. Irrevocable Payment Commitment (IPU) of the buyer’s bank in favour of the supplier (under the buyer’s credit line)

b1 Financing of the IPU by buyer’s bank on request of the buyer in favour of the supplier

or

b2 Financing of the IPU by supplier’s bank on request of the supplier

           Source & Copyright©2020 – Marco Polo

Payment Commitment is based open data standards, the distributed Marco Polo Platform and the underlying blockchain technology.

Dani Cotti, Managing Director, Center of Excellence, Banking & Trade at TradeIX commented: “There is a very strong interest from leading financial institutions and their corporate clients in shifting their Letter of Credit and Bank Payment Obligation (BPO) transactions to Marco Polo’s Payment Commitment solution leveraging blockchain technology and increasing the risk mitigation components of open account transaction. I believe that The Payment Commitment solution addresses the needs of the corporates (buyers and sellers) and allows reducing costs and time to transact significantly for banks and corporates while increasing efficiency and data transparency among the trade participants.”

Marco Polo trade platform progress

Currently, the Marco Polo Network has the largest number of financial institutions (over 30) and has been tested and piloted by over 70 corporates and banks all around the globe. The latest corporate users include MAN, Voith, Wolff Group, Pharma Handel GmbH, NMLK, Vesuvius, Daimler, and Dürr.

At the moment banks are hedging their bets with several joining two or more of these platforms not surprisingly as interoperability between the different platforms is currently not guaranteed, e.g. Marco Polo and Contour are inherently interoperable as they both are operating on the Corda Network but they haven’t achieved this yet, while We.trade is on Hyperledger and not compatible at this stage.


CTMfile take: It is clear that the blockchain trade platforms are still in development. Could the IPU be the new trade instrument that takes off, unlike Swift’s BPO? It is definitely a possibility as it is a real challenger to the LC model (lower costs and improved efficiencies), AND it leverages blockchain technology to expand connectivity with additional data and service providers in an open network that is not controlled by one entity. Much to play for.

 

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Trade Finance
Trade Transaction & Payment Services
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