Fraud in $4 Trillion Trade Finance Has Banks Turning Digital

trade-fraudStandard Chartered Plc, which lost almost $200 million from a deceit at China’s Qingdao port two years ago, has teamed up with DBS Group Holdings Ltd. to develop an electronic ledger of invoices that uses a parallel platform to the block chain employed in bitcoin transactions. The risk impersonated by fraud in the $4 trillion trade-financing industry has provoked banks to start discovering distributed-ledger technology like the one that underpins bitcoin. Lenders such as Bank of America Corp. and HSBC Holdings Plc say they are looking at block chain for trade finance and other banking applications.

Block chain followers debate that the technology will change the face of banking, helping lenders cut billions of dollars in costs. Trade financing, a centuries-old banking mainstay, may become ground zero for block chain adoption because it promises to do away with paper invoices and the fraud that accompanies them if banks can come together around a joint platform.

The banks conducted a trial late last year — code-named Trade Safe — that used a shared ledger of as many as 60 mock invoices, according to Gautam Jain, Standard Chartered’s global head of digitization and client access for transaction banking. Details from an invoice are used to generate a unique hash value stored on the ledger, which appears if another bank tries to register the same details separately, according to Jain.

HSBC and Bank of America said in separate e-mails they’re involved in a number of block chain projects including applications for trade finance. Citigroup Inc., meanwhile, said it’s in the “early stages of exploration” to assess how the technology can help in treasury and trade. None of the banks provided any specifics.

Despite the incentives, block chain will only be able to solve the fraud problem if banks agree to club together to use the central registry, according to Liew Nam Soon, Ernst & Young’s Asean managing partner for financial services.

“There has always been a culture of competitiveness and challenges in banks working together on large-scale projects or involving more than a handful of banks,” Liew said. “There is evidence, however, that this is changing with the current digital disruption in the industry, compelling many banks to collaborate.”

The issue for any partnership on a distributed bill is removing participants to determine on common standards in adopting a same invoicing platform. For example, a series of information fields from a check that will be used to beget a crush value for a block chain will need to be negotiated with a opposite banks, Standard Chartered’s Jain said. Banks will also need common messaging standards, according to Accuity’s Balani.

“The hurdles are associated to similar a common routine and ensuring that a singular handling complement can be adopted for all,” pronounced Owen Jelf, the London-based tellurian handling executive of Accenture’s collateral markets practice. “Think of it like putting 7 people who pronounce 7 opposite languages in one room to try to settle a problem, in this box how to settle a trade financial transfer.”

It helps that one of a biggest advocates for digital ledgers in banking is an obvious former banker. Blythe Masters, who once ran JPMorgan Chase Co.’s line business and assisted invent credit-default swaps, is now an arch executive officer of Digital Asset Holdings LLC that is seeking to popularize a use of block chain in a financial industry.

Standard Chartered and DBS are working with an Infocomm Development Authority of Singapore, a supervision group that pursues to allege record and telecommunications in a city, to nurture a distributed bill used in a TradeSafe trial. The IDA wishes to commercialize a record and is in debates with other banks, an orator pronounced in an e-mailed respond to questions, disappearing to yield names or a timeline.

“We need committed partners,” an IDA said. “Trade financing is borderless and banks that do adopt this record will be means to advantage regardless of a nation of origin.

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