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Standard Chartered, a founding member of blockchain trade finance project Contour, has unveiled plans to launch smart guarantees on the platform as its scope expands beyond digitalising the letter of credit process.

Unlike a letter of credit which involves multiple parties, performance details and over 100 pages of documents, a commercial bank guarantee is a much simpler instrument to digitise. Standard Chartered first began work on this in 2018 with Siemens Financial Services, the financing arm of Siemens, and TradeIX, a digital trade provider.

“We developed a proof of concept (POC) smart guarantee, including issuance, co-drafting issuance, advising, and the payment processes that happens in a guarantee,” Sam Mathew, the bank’s global head of documentary trade product management, tells GTR.

This saw the utilisation of a decentralised ledger and the auto-execution of smart contracts to provide a streamlined communication tool between the guarantee issuer (in this case Siemens), the bank (Standard Chartered), and the beneficiary (Siemens’ customers).

“We then explored options to commercialise this POC and eventually we injected that IP, or that code, into Contour,” adds Mathew. “We have since tested this new smart guarantee feature with a key client and they were very happy with what they saw, because we have added more functionality driven by co-creation inputs from the other banks on the Contour platform.”

He adds that Standard Chartered is speaking to a “strong pipeline of clients”, and expects to carry out its first live smart guarantee transaction on the Contour platform soon.

With Contour, formerly known as Voltron, becoming a standalone legal entity in January this year, the feeling among the banks involved is that now is the time to focus on making this one initiative work, rather than continuing to spread their bets among the different consortia racing to make trade digitisation a reality.

Speaking to GTR, Josh Kroeker, blockchain lead for global commercial banking at HSBC – another Contour member bank – says: “Contour is a great application, it has a lot of value, it has a good structure, and it now has a good management team. We have all of those bones. All we need now is for the banks and the corporates around the world to say that this is what we are going to use. This is what will solve this problem that has been so difficult to solve for decades.”

“We are not looking to onboard or join a lot more of these partnerships and platforms in 2020,” adds Standard Chartered’s Mathew. “The 2020 focus is going to be about commercialising what we’ve already done. Contour is really the only significant blockchain play we have in the documentary trade space. If you look at letters of credit and guarantees, there are not too many solutions out there.”

Achieving the critical mass necessary for true global trade digitisation remains an issue, however. “We need our clients and the counterparty banks to be ready on the platform,” says Mathew.

Standard Chartered now plans to showcase its smart guarantee capabilities to its large guarantee beneficiaries, including government departments in emerging markets. “Could I, for example, talk to beneficiaries that are currently receiving paper guarantees from Standard Chartered and propose an end-to-end digital guarantee solution that eliminates the paper handling? We believe these beneficiaries will see a lot of value from this Contour solution: all of the guarantees that they receive will be electronic and digital in nature, bookkeeping will be easier, the audit trail will obviously be easier, and it’s all on the blockchain. That is how we will sell it,” says Mathew.

HSBC says it is taking a similar approach, focusing on getting its corporate clients to start using the letter of credit application on Contour for their regular business in the first instance, and then expanding from there.

“The last two years have been about making sure that what we are building on the application level is really driving value for the end user. We are very confident in that now,” says Kroeker. “The best thing the industry can do is sort of choose that we are going to make this work.

“It is a self-fulfilling prophecy. If everyone says that is not going to work because it will take too much time, then it’s going to take too much time and is not going to work. What is going to drive digitisation is common networks.”