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Energy traders and banks back new blockchain platforms
Aim is to provide faster, cheaper and more secure ways of completing trades
A group of the world’s leading energy traders and banks is looking to shake up the centuries-old trade finance industry with the launch of two new platforms underpinned by blockchain technology.
Energy groups including Royal Dutch Shell, Mercuria and Gunvor, and financial institutions such as ING, Société Générale, Citigroup and ABN Amro are backing two new blockchain platforms.
By digitising the large amount of contracts, letters of credit, invoices and other paperwork currently sent around the world by email, fax or post, and putting them on the Ethereum blockchain platform, they are hoping that the new platforms will lead to faster, cheaper and more secure ways of completing a trade as well as settling the transaction.
“Blockchain technology will answer the needs of key participants in commodity trading by improving efficiency and security,” said Souleima Baddi, chief executive of Komgo, which will focus on commodity trade financing by digitising the lenders’ customer identification documents as well as electronic letters of credit.
Komgo will launch in November alongside VAKT, which will focus on the raw material transaction, putting the information and paperwork needed for a deal to be processed on the platform. The two blockchain platforms share seven common shareholders and will work in tandem so that users can complete a transaction on the physical material side as well as the deal’s financing.
From the archives
Explainer Blockchain
A revolution only in its infancy
Blockchain is an electronic information system that provides the underpinning of cryptocurrencies by recording deals and related information in digital blocks.
Encrypted digital information, stored in linear, chronological order, can be shared and corroborated by those with permissions. The records cannot be revised and any attempted changes are visible to all participants.
Commodity trading and finance, by contrast, is a centuries-old sector still reliant on the exchange of physical documents. This can lead to delays, high costs and also an increased risk of fraud.
In an attempt to move into the digital age, banks and big commodity traders and their lenders have been trialling deals using blockchain, using the technology to process paperwork.
One of these experiments saw document-processing times cut to a fifth of the average, while another oil trade led to cost savings of 25-30 per cent, according to participating banks.
Blockchain has also been used to track the provenance of produce. Commodities group Cargill, for example, is operating a pilot scheme for its turkeys. Elsewhere, AP Moller-Maersk, the Danish shipping group, is using it in marine insurance contracts and some of Europe’s biggest banks, including HSBC and Deutsche Bank, in cross-border trade finance.
The two new platforms are also based on successful earlier experiments. A blockchain-based platform was used in early 2017 for an oil cargo deal involving Mercuria, the Geneva-based energy trader, and banks ING and SocGen, while at the start of this year agricultural trader Louis Dreyfus completed a soyabean transaction with a Chinese buyer with banks ING, SocGen and ABN Amro.
VAKT is looking to focus on the North Sea oil market when it launches later this year. Both platforms are talking to other players to increase the number of participants.
“The projects are unique in that you see both traders and lenders backing the ventures, and the solution is answering to the needs defined by the industry itself, and co-constructed together,” said Ms Baddi, a former deputy head of commodity finance at SocGen.
https://www.ft.com/content/648c3dda-bb47-11e8...b72926558f via @financialtimes
Aim is to provide faster, cheaper and more secure ways of completing trades
A group of the world’s leading energy traders and banks is looking to shake up the centuries-old trade finance industry with the launch of two new platforms underpinned by blockchain technology.
Energy groups including Royal Dutch Shell, Mercuria and Gunvor, and financial institutions such as ING, Société Générale, Citigroup and ABN Amro are backing two new blockchain platforms.
By digitising the large amount of contracts, letters of credit, invoices and other paperwork currently sent around the world by email, fax or post, and putting them on the Ethereum blockchain platform, they are hoping that the new platforms will lead to faster, cheaper and more secure ways of completing a trade as well as settling the transaction.
“Blockchain technology will answer the needs of key participants in commodity trading by improving efficiency and security,” said Souleima Baddi, chief executive of Komgo, which will focus on commodity trade financing by digitising the lenders’ customer identification documents as well as electronic letters of credit.
Komgo will launch in November alongside VAKT, which will focus on the raw material transaction, putting the information and paperwork needed for a deal to be processed on the platform. The two blockchain platforms share seven common shareholders and will work in tandem so that users can complete a transaction on the physical material side as well as the deal’s financing.
From the archives
Explainer Blockchain
A revolution only in its infancy
Blockchain is an electronic information system that provides the underpinning of cryptocurrencies by recording deals and related information in digital blocks.
Encrypted digital information, stored in linear, chronological order, can be shared and corroborated by those with permissions. The records cannot be revised and any attempted changes are visible to all participants.
Commodity trading and finance, by contrast, is a centuries-old sector still reliant on the exchange of physical documents. This can lead to delays, high costs and also an increased risk of fraud.
In an attempt to move into the digital age, banks and big commodity traders and their lenders have been trialling deals using blockchain, using the technology to process paperwork.
One of these experiments saw document-processing times cut to a fifth of the average, while another oil trade led to cost savings of 25-30 per cent, according to participating banks.
Blockchain has also been used to track the provenance of produce. Commodities group Cargill, for example, is operating a pilot scheme for its turkeys. Elsewhere, AP Moller-Maersk, the Danish shipping group, is using it in marine insurance contracts and some of Europe’s biggest banks, including HSBC and Deutsche Bank, in cross-border trade finance.
The two new platforms are also based on successful earlier experiments. A blockchain-based platform was used in early 2017 for an oil cargo deal involving Mercuria, the Geneva-based energy trader, and banks ING and SocGen, while at the start of this year agricultural trader Louis Dreyfus completed a soyabean transaction with a Chinese buyer with banks ING, SocGen and ABN Amro.
VAKT is looking to focus on the North Sea oil market when it launches later this year. Both platforms are talking to other players to increase the number of participants.
“The projects are unique in that you see both traders and lenders backing the ventures, and the solution is answering to the needs defined by the industry itself, and co-constructed together,” said Ms Baddi, a former deputy head of commodity finance at SocGen.
https://www.ft.com/content/648c3dda-bb47-11e8...b72926558f via @financialtimes
