In Canada, two tech companies and a bank have collaborated on a successful pilot programme that has brought standby letters of credit (LCs) and guarantees onto the blockchain.

National Bank of Canada was able to use tech company CGI’s trade finance platform and blockchain startup Skuchain’s smart contracts application Brackets to modernise a cumbersome process that is often conducted by email.

Standby LCs are prone to error and vulnerable to fraud. The process is slow, archaic and ripe for improvement. The use of smart contracts allows the bank to pre-empt any issues that may arise between counterparties, by intelligently constructing agreements and digitally mapping ways in which these issues can be automatically settled on the platform.

“Often those applications get bounced round between the bank and the applicant. The guarantee gets to the issuing bank and they have a problem with it. A lot of that’s email, but there are often terms that are not agreed by the other bank and it gets more expensive, because you have to make an amendment,” Kitt Carswell, vice-president and senior offering manager at CGI, told GTR at Sibos in Sydney this week.

When the application is lodged on the blockchain, meanwhile, it is processed through the pre-agreed terms on the smart contract, clearing both banks, before passing through to the Trade360 platform where it is processed.

It marks the latest step towards commercialisation of a blockchain solution for trade finance by CGI. Last year, the company worked with Bank of Montreal, Royal Bank of Canada and MUFG to integrate various trade finance processes with blockchain capabilities, again combining its Trade360 platform with Skuchain’s Brackets.

Also in 2017, CGI worked with 11 banks on the R3 Corda platform to process sight letters of credit (LCs) on blockchain. The company is working to add blockchain functionality as a commercial offering on Trade360, which it hopes to complete by mid to late-2019.

Users of the system would be able to access these modules, but CGI has not been decided yet whether they will have to pay more, or whether the additional tools will be covered by the initial fees, Nancy Amert, director of the CGI trade innovation lab, tells GTR.

“This pilot project is a great opportunity to leverage blockchain technology to simplify the process for negotiating standby letters of credit and guarantees while making it more transparent and secure. This will enable us to offer a simple, fast and efficient experience to our commercial clients which facilitates managing their business,” says Patrice Roy, vice-president at National Bank of Canada.

Srinivasan Sriram, CEO at Skuchain, says that this is the first live implementation of the distributed ledger payment commitment (DPLC), a product that has come out of a Baft working group involving Skuchain and CGI.