Swedish blockchain company Enigio Time has launched into the trade finance space to help the industry digitise negotiable payment instruments such as digital promissory notes and bills of exchange.
The company is also partnering with the International Trade and Forfaiting Association (ITFA) in a project to create industry standards for such digital instruments.
Founded in 2012, Enigio initially specialised in digital archiving, but earlier this year it launched trace:original, a blockchain-based solution that enables users to create digital documents, prove and transfer ownership and validate that a digital document is the same version as the original.
While all digital documents created using trace:original are stored “off chain” by the document holder, meaning document content is kept decentralised and confidential, the document identity and evidence of amendments are registered on the blockchain in the form of cryptographic hash-references. This allows anyone with a copy of the document to verify its authenticity against the ledger.
The first use-case for trace:original was the digitisation of promissory notes for mortgage loans in Sweden, where Enigio is currently implementing the solution with a bank and a mortgage institute.
The blockchain company is now entering the trade finance space, focusing initially on bills of exchange, a negotiable instrument that demands payment from debtors within a stipulated period of time and which can be traded on the secondary market.
“Currently bills of exchange are being trading physically, in paper format,” Enigio’s chief strategy officer Lars Hansen tells GTR. “One would of course like to have a bill of exchange in a pdf format, but if I were to make copies of that pdf, which one of those copies is the original? Until now, there hasn’t been a solution where you can transfer a digital original freely and which is not connected to a physical ecosystem.”
By enabling users to create and manage original documents in a digital form, thus replicating the functionality and legal status of their paper equivalents, it is hoped that trading negotiable instruments will be more efficient and secure. Hansen expects this to benefit both the primary and secondary trade finance market.
While the solution can digitise any documents (according to Enigio, another obvious use case is the documents of title, such as bills of lading and warehouse receipts), Hansen says the bill of exchange was a good place to start as it is “much simpler” than other trade documents, requiring only three different parties (the seller, the buyer and a third entity, typically a bank, which helps guarantee payment or receipt of funds). So far, no other trade finance digitalisation project has targeted the bill of exchange.
According to Hansen, one challenge faced by the likes of Bolero, essDocs and blockchain consortia such as Marco Polo, we.trade and Voltron is that only members of a closed network can use the solutions to exchange data and transact. If one stakeholder of the transaction is not a member of the “club”, it will typically be presented with paper documents instead.
He says trace:original differs from these technology projects in that documents created using the solution are freely transferable. While only customers can create new digital originals, it is free for other parties to own, manage, transfer ownership and validate a trace:original document.
“You can be a holder of a document without being a member of the ecosystem,” Hansen says. “That way it is a freely transferable digital document, because we don’t need an agreement with anyone on the secondary market – they can go on a web interface and read the document.”
As such, he sees Enigio as a potential partner rather than rival to existing digitalisation initiatives, as the firm could enable closed ecosystems to digitise and easily sell assets on the secondary market.
“We will provide our technology to anyone who finds it useful,” Hansen says. “We are talking to all large suppliers of trade and supply chain finance software, and also to banks directly. We are talking to one very large bank about doing guarantees.”
Among Enigio’s first customers are DBT Företagslån, an alternative lender in Sweden. The blockchain company has also partnered with Ebury, a UK-based financier, to test how trace:original can be integrated to Ebury’s trade and transaction platform.
Enigio will also be kicking off a pilot project with ITFA’s fintech committee, which will see the industry organisation work to define market-level usage guidelines, document tags, rules, legal opinions for promissory notes and bills of exchange around Enigio’s technology.
The pilot will form part of a new ITFA working group for digital assets. ITFA says it will now work to identify initial working group members, which will include banks, core application providers and fintech companies.