HSBC has conducted yet another live pilot transaction on the Voltron blockchain platform for letters of credit. The consortium behind the project is now looking to establish an independent company that can bring the solution into production.
Built on Corda, Voltron was the first trade finance prototype to be showcased by R3 in mid-2017. The platform, which is aimed at digitalising the letter of credit process, is today run by a consortium of eight founding members: Bangkok Bank, BNP Paribas, CTBC Holding, HSBC, ING, NatWest, SEB and Standard Chartered.
The project reached a milestone in May last year when HSBC and ING used the platform to conduct their first live, commercial trade finance transaction together with trading giant Cargill, which saw transaction time being reduced from a standard five to 10 days, to just 24 hours.
Since then, another four live pilots have been completed on Voltron: the second saw HSBC and ING integrate Bolero’s solution for issuing and managing electronic bills of lading. Another two pilots have involved BNP Paribas and Bangkok Bank.
Most recently, HSBC announced this week it has tested the platform with wool exporter Fox & Lillie, covering a shipment of wool from Australia to the China SDIC International Trade Nanjing Company. HSBC China issued a letter of credit on behalf of the importer, with HSBC Australia representing the exporter.
Speaking to GTR, Joshua Kroeker, blockchain lead for global commercial banking at HSBC, says the overall solution is “very solid” and that the focus of the Voltron consortium this year will be to expand its network.
“The purpose of this transaction was not to showcase a new application functionality, it was more focusing on the network: how can we expand the network, how can we get more industries, clients and countries involved in the process of launching a network,” he says, adding that the transaction did not involve an electronic bill of lading.
With pilots having been underway for almost a year now, questions have been raised around why it is taking quite so long for Voltron to go live. Addressing this point, Kroeker explains: “We’ve been working with letters of credit for a long time and have been trying to digitalise them for at least 20 years or so, so this isn’t something we want to do quickly in a huge race. It’s something that we want to do right. We want to make sure that when we go live we have a very substantial solution.”
Consortium members have previously announced the solution would go live in 2019, but Kroeker could not confirm this.
“We are not going to make a public statement about our commercial launch just yet,” he says. “A couple of things need to happen before we launch this as a commercial solution. The first is the creation of a new company – a neutral entity that will own and operate the platform on behalf of its users. And then also deciding what is going to be our commercial launch strategy.”
The aim is to launch such a company in 2019. It follows the approach of other blockchain consortia, such as we.trade, a platform for open account trade, and komgo, a solution for commodity trade finance. Both are run by independent legal entities created by bank shareholders to own and operate the platforms.
Kroeker says Voltron will also spend the next six to eight months carrying out more pilots with different industries and countries, identifying and evaluating potential go-live markets.
“The letter of credit is such a huge product that is used around the world. So you need to have a focused approach: where are the most important markets and where do we have the highest chance for success? That’s what we’re looking at right now, and every time we do one of these tests, it’s a very good test of that market,” he says.
So far, HSBC’s pilots have covered soybeans, plastic derivatives, metals and now wool. “All of these could be go-live markets. We have not made a decision yet, and banks may decide to focus on different industries,” Kroeker says.
Some of the founding banks, including NatWest, SEB and Standard Chartered, are yet to pilot the solution, but, according to Kroeker, these banks are currently identifying clients and are expected to start live testing throughout 2019.
Voltron will also look to attract more banks to the project, and is seeing interest from a “very substantial” number of financial institutions, he says.