Fintech-enabled fund manager TradeFlow Capital Management has partnered with the Baltic Exchange, a provider of global freight market information and other maritime services, in a pilot digital escrow transaction as part of a commodity trade executed through TradeFlow.

The transaction involved the purchase by a trader of a shipment of agri-commodities from an Indian producer. The trader then exported these goods to China. TradeFlow’s funds provided export financing for the trade, while the Baltic Exchange held the funds on behalf of the counterparties within its dedicated escrow bank account until the transaction was completed.

The exchange of ownership documentation was carried out digitally, speeding up a process which can traditionally take several days.

“Using traditional methods to execute these transfers can result in capital being tied up for many weeks which brings added costs and capital inefficiencies into the whole trade ecosystem,” says John Collis, CRO of TradeFlow. “We have been impressed by the ease with which we were able to work with the Baltic Exchange and how smooth the entire escrow process has been.”

TradeFlow says that this successful test case paves the way for greater adoption of technologies and escrow processes which will “reduce paperwork, minimise transaction time, and improve the overall efficiency of commodity trades, increasing the turnover velocity of capital in the commodity trade ecosystem without compromising security”. The company adds that the use of escrow within a commodity trade holds the promise of unlocking and enabling additional SME commodity trades worth billions of dollars each year.

Speaking to GTR, Tom James, CEO and CIO of TradeFlow, says: “For small and medium-sized enterprises (SMEs) that are not getting traditional bank financing, they are typically also not getting the benefit of the use of letters of credit or other safety mechanisms that protect buyers and sellers in transactions. This was the reason for trying to find something which was complementary and supportive.”

TradeFlow has not revealed the size of the transaction or the names of the counterparties, but James says that the deal size was in the “hundreds of thousands”, adding: “This process is relevant for those trades that are just not interesting for the banks because the fee income is too low.”

TradeFlow says it now intends to roll out the digital escrow service to the underserved segment of SMEs operating in the bulk commodity markets.