Two live transactions boost Marco Polo’s digital trade finance network
by Ben Poole
In May 2021, Commerzbank joined with İşbank and LBBW to become one of the first banks to execute commercial transactions with German and Turkish corporate clients via the Marco Polo trade finance network in a live environment. The purpose of these transactions was to establish an irrevocable payment commitment to the supplier, issued by the buyer’s bank.
With these live transactions, Commerzbank has reached a key milestone in the run-up to the market launch of Marco Polo Payment Commitment. The data required to establish the payment commitments for both transactions was exchanged in a digital format via the Marco Polo trade finance network, using Corda blockchain technology.
The first cross-border transaction took place on 10 May 2021, in cooperation with İşbank, between chemicals firm Kuraray Europe and major glass manufacturer Şişecam. The underlying commercial transaction involved the export of laminated special glass interlayers from Germany to Turkey. The payment by open account has been replaced by an irrevocable payment undertaking with digital exchange and matching of trade data.
"Our clients are looking for innovative supply chain management solutions," explained Nikolaus Giesbert, Divisional Board member Transaction Banking at Commerzbank AG. "Commerzbank is focusing on speed and transparency in this area, where blockchain applications have tremendous potential. This transaction is a major step towards market launch."
"Following our pilot transaction in 2020, we were thrilled to carry out a first live transaction using the Marco Polo platform," said Juliane Löbig, director Finance & Accounting at Kuraray Europe. "Having automated and digitalised most of our internal processes over recent years, the Marco Polo network is the perfect match for our digitalisation strategy. With Commerzbank, İşbank and Şişecam, we have joined forces with valuable business partners to pave the way for digitalisation of one of the last remaining paper-based processes - documentary payments."
The second transaction - the ‘go-live’ in Commerzbank’s home market of Germany, followed on 20 May 2021, in cooperation with LBBW and between pump and valve manufacturer KSB and the technology group Voith. The underlying transaction was the purchase of special couplings. As with Commerzbank’s first live transaction, the data transfers required to secure payments between KSB and Voith, as well as the credit institutions involved, were performed in a secure and closed area, with access only permitted to the parties involved in the transaction.
"The coronavirus pandemic has shown how susceptible to disruptions paper-based settlement is," commented Dr Christian Ricken, member of LBBW’s Board of Managing Directors and responsible for the capital markets business, asset management, and international business. "Thus, it is all the more important that we can offer our clients a secure, efficient, and fast digital trade finance process with Marco Polo."
The time-consuming process with paper trade documents, including preparation, dispatch, and check, as known from the documentary letter of credit, has been replaced by the fully automated matching of trade data. The distributed ledger, built on Corda, ensures the necessary liability as well as the required confidentiality of the settlement. Thanks to the fully transparent settlement process, KSB, Voith, and the banks involved maintained exclusive visibility on every step along the process.
"We would not have got this far without the trusting and uncomplicated cooperation between all parties involved," said Gerald Böhm, head of Export and Trade Finance at Voith. "We are looking forward to many interesting discussions with other companies and banks, so that we can use the payment commitment module more often."
"After digitalising our production and products wherever possible, we are now systematically approaching digitalisation of our processes," added Dr Matthias Schmitz, managing director responsible for Finance and Procurement at KSB. "The Marco Polo platform, and technologies such as blockchain and distributed ledger, are allowing us to raise our trading processes to a new, paper-free, and - most importantly - secure level."
Digitising trade finance
A Marco Polo Payment Commitment is an irrevocable, abstract undertaking by the buyer’s bank to the supplier to make payment on the due date. The payment commitment is based on the exchange and successful automatic matching of digital trade data in the DLT/blockchain network, thus providing financing options.
"Live payment commitment transactions involving KSB, Kuraray, Şişecam and Voith, and Marco Polo member banks Commerzbank, İşbank and LBBW are proof that digital end-to-end settlement processes with a high degree of automation and an electronic data exchange are possible, and will become a reality in trade finance," concluded Daniel Cotti, managing director, Centre of Excellence Banking & Trade at TradeIX.
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