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Twelve banks develop trade finance app on R3’s Corda DLT platform

August 07, 2017 (New York/London/Singapore) – Twelve banks have passed a major milestone in the digitisation of documentary trade finance. They have developed a prototype application on R3’s distributed ledger platform, Corda, that has the potential to significantly reduce inefficiencies and costs by streamlining the processing of sight letters of credit.

Bangkok Bank, BBVA, BNP Paribas, HSBC, ING, Intesa Sanpaolo, Mizuho, Natixis, RBS, Scotiabank, SEB and U.S. Bank have been collaborating with R3 and technology partner CGI over the last year on numerous trade finance projects, building and testing applications. Using lessons learnt from these projects, the group has now developed a trade finance application on Corda that incorporates shippers and carriers. Several R3 member institutions now intend to pilot the platform with the goal of a making it widely available in 2018.

David Rutter, CEO of R3, comments: “Like so many of the processes and systems banks are forced to use today, the infrastructure that supports trade financing is extremely outdated and prone to risk and error. The work we have been doing with our members over the last year has shown that this challenge no longer needs to stand in the way of giving businesses access to the services they need to trade across borders. The application we have built is the first of its kind and we look forward to rolling it out to our Corda users across the world.”

Marguerite Burghardt, Global Head of the Trade Competence Center at BNP Paribas, comments: “While LCs have not progressed as much as the open account business in recent years, they remain a good way to finance trade and mitigate risks. If the industry manages to make the whole process fully digital, transparent and STP, this could mean renewed development and wider access to this financing technique.”

Vivek Ramachandran, Head of Growth and Innovation, Commercial Banking at HSBC said: “The prototype integrates a standardised user interface that allows carriers and shipping companies to prepare and validate shipping details when they onboard goods and deliver them to the buyer – even if they are on a different technology platform. We believe that offering optionality in terms of the systems and technologies participants use, and ensuring interoperability between these technologies, will significantly advance efforts to digitise trade. To further enhance the prototype, we’ll continue to work with established and emerging title registry providers to ensure this solution can provide a secure and legal title transfer of goods in a live environment, and anticipate piloting the app on the R3 network before the end of the year.”

Ivar Wiersma, Head of Innovation Wholesale Banking at ING said: “This application has the capacity to make the overall trade flow, currently hampered by outdated processes, faster and more cost effective. This is a great step forward in the process of digitalising and standardising the documentary trade finance process from start to finish, connecting multiple parties in the trade finance chain with the feature of interoperability of the different technologies these parties use.”

Jim Bidwell, Head of Trade Services Product Management at RBS, said: “Distributed ledger technology has huge potential to improve customer experience and reduce costs across Trade Finance, which has remained largely unchanged for many years. This initiative is a great demonstration of how we can collaborate to develop innovative solutions for our customers.”

Craig Weeks, Senior Vice President and Manager of U.S. Bank’s International Banking Group, said: “We’re excited about the potential of distributed ledger technology to increase transparency and efficiency across the trade finance lifecycle. This work has proven the viability of the technology to effectively manage the process and we’re very much looking forward to testing this in an operational setting.”

R3’s distributed ledger platform, Corda, has been built specifically for the financial services industry. The technology offers the ability to simplify the complex links and networks involved in the trade and trade finance market by providing a shared and synchronised database of transactions between businesses across geographies.

Despite the growth of open account business, traditional trade finance remains vitally important, particularly to facilitate international trade. According to the International Chamber of Commerce (ICC), commercial letters of credit still account for 38% of the trade finance product mix. In an effort to meet customer demand and address growing margin pressures, banks have been collaboratively developing a solution to drive greater efficiencies, reduce cost and simplify today’s existing processes. 

About R3

R3 is an enterprise software firm working with over 80 banks, financial institutions, regulators, trade associations, professional services firms and technology companies to develop Corda, its distributed ledger platform designed specifically for financial services. R3’s global team of over 110 professionals in 9 countries is supported by over 2,000 technology, financial, and legal experts drawn from its global member base. R3 recently announced the successful completion of the first 2 of 3 tranches in a Series A fundraise valued at USD 107 million.

Corda is the outcome of over two years of intense research and development by R3 and its members and meets the highest standards of the banking industry, yet is applicable to any commercial scenario. With Corda, participants can transact without the need for central authorities, creating a world of frictionless commerce.

Press contact

R3:

Nick Warren / Nick Murray-Leslie
Chatsworth Communications
+44 (0)207 440 9780
contact@chatsworthcommunications.com

Charley Cooper
R3
+1 929 329 1550
charley@r3.com

The Weekend Read: Mar 26

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by Todd McDonald

When they say ‘Blockchain’ just close your eyes and think ‘DLT DLT DLT’…

First up, some Corda love. This Australian Financial Review article (paywalled) highlights how our bank partner CBA used Corda in collaboration with their customer, Colonial First State, and a delivery partner, Hewlett Packard Enterprise, to show how it could help solve a key business problem of capital costs:

Colonial First State is re-engineering the process of buying units in the $2.2 trillion market for managed funds in a move it says will “dramatically” reduce the amount of capital banks will have to hold against wealth operations. A recent experiment with Commonwealth Bank of Australia’s emerging technology team and Hewlett Packard Enterprise using the R3 consortium’s Corda ‘distributed ledger’ allowed Colonial to eliminate arduous paper application process for managed funds and the three-day wait for the delivery of units.

Corda, which is being developed by a consortium of global banks, can remove counter-party risk for intermediaries like CFS by allowing assets to be exchanged and transactions settled instantaneously. It also provides transparency on what each counter-party holds across geographies. By removing the risk of the issuer defaulting or the investor failing to settle, banks will be able to reduce the amount of regulatory capital required to provide cover for those risks.

“If [a blockchain] was adopted locally, regionally or globally, the capital the industry would need to hold could reduce dramatically,” CBA’s group executive for wealth management, Annabel Spring, told the APAC blockchain conference in Sydney last week.

CBA is confident about Corda’s security protocols, which have been designed with input by dozens of banks around the globe. In the CFS trial, the units were transferred cryptographically with keys in the form of PIN numbers required to access the system through mobile apps.

We also got a nice shout out by our friend Michael Dowling of IBM with this in depth post on the evolution of Corda, along with some reference to the recent blockchain-not-blockchain kerfuffle. And since we have been, ahem, a few weeks between posts, here are some ‘catch up’ blockchain-y links:

And finally, a big congrats to ATB Financial as our newest Canadian member!

RegTech (cont.)

R3 was happy to announce another member recently, as we welcomed the State of Illinois to our growing list of Regulator Members. Read about this here and here, along with their overall plans to leverage DLT. Our CEO David Rutter and R3 world traveller Isabelle Corbett followed up with this conversation with CoinDesk that lays out some of the concepts behind the R3 ‘RegNet’.

The efforts and interest of regulators extends across the US, both at the State (see Delaware is Drafting Law That Would Recognize Blockchain Records) and Federal level; Acting (and now Nominated) Chairman of the CFTC J. Christopher Giancarlo recently gave a speech on his overall agenda. Of note was the section dedicated to FinTech, both due to its substance and to the fact that the Chairman gave the topic proper airtime even with his quite package agenda. Full text is here, quick pull quote below:

[M]arket regulation by the CFTC has not kept pace. In too many ways, it remains an analog regulator of an increasingly digital marketplace, curtailing its effectiveness in overseeing the safety and soundness of markets. But it doesn’t have to be this way, especially in an industry that is synonymous with innovation. The CFTC must be a leader in adopting the “do no harm” approach to financial technology similar to the US approach to the early Internet. We must cultivate a regulatory culture of forward thinking.

Couple the above with this post from ISDA on the ‘past and future’ of ISDA agreements, particularly on the role of Master Agreements in the world of smart contracts. As a reminder, our third Smart Contract Template Summit (suggestions for a new name welcome!) will be coming up this June.

MAS continues to push an aggressive fintech agenda of their own. A few weeks back, MAS announced the successful completion of the interbank payments projects that they executed with R3 and a collection of local banks. See here and here. And this past week they announced more details on their plan to roll out a national KYC utility.

Another organization at the intersection of regulation, infrastructure and fintech is CLS. This IBTimes article gives an interesting look at some of their thinking. The article also lays out the differences between ledger approaches, namely that of IBM’s Fabric vs R3’s Corda.

Get the Papers Get the Papers

Our Research team and amazing collaborators have been busy recently, with three new papers:

  1. R3’s Survey of Confidentiality and Privacy Techniques, with an accompanying piece in American Banker
  2. R3’s Report on Fedcoin with JP Koning
  3. R3’s Bridging the Gap Between Investment Banking Architecture and Distributed Ledgers by my good friend Martin Walker

Others have been busy as well. BIS recently release The Quest for Speed in Payments (summary article here), while G20 Insights released The G20 Countries Should Engage with Blockchain Technologies to Build an Inclusive, Transparent, and Accountable Digital Economy for All

The Weekend Read: Mar 5

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Enterprise Ethereum Alliance

The Enterprise Ethereum Alliance formally kicked off earlier this week with an all day meet up in JP Morgan’s Brooklyn offices. The group consists of Ethereum-focused startups and large companies, with a focus on developing standards for private Ethereum deployments. The reaction by the press was curious, as many picked up a theme of Microsoft and IBM waging a proxy war via EEA (Microsoft) and the Hyperledger project (IBM). For example, American Banker noted “the IBM-led Linux Foundation Hyperledger Project” and their use of “a mainframe in a cloud” vs Microsoft as “more focused on openness — letting organizations choose the combinations of technology that work best for them.” Coindesk followed up with an article on the decentralized nature of the new group:

Still, while the board is also designed to give members a sense of accountability, more experimental governance models are also being considered. “Everything starts as an idea, with one person,” said Lubin. “That happened. But Ethereum is moving towards decentralization.”

The press loves a simple narrative (see below for a fine example), but both groups are very diverse and seek to move the whole industry forward, as we ALL have a lot of work to do to make this technology real for business users. One theme that did persist at Tuesday’s EEA launch was the desire to keep aligned, and in some minds perhaps eventually merged, with the public Ethereum chain (not to be confused with Ethereum Classic, or Ethereum Classic Classic!). This and Bitcoin’s recent price surge are most likely what is behind the recent ramp up in the price of ether. For an older, somewhat related article on public Ethereum, I recommend this Aeon article.

Et Tu, Blockchain?

The only good thing to come out of the R3 non-story was this new Tim Swanson meme...
The only good thing to come out of the R3 non-story was this new Tim Swanson meme…

Over the last two weeks, a blockchain butterfly flapped its wings, and the next thing we knew, R3 was caught in the oddest of fake-news hurricanes. In short: a tweeted pic from a Corda meetup was coupled with the quote “GAME OVER” (perhaps an early tribute to the great Bill Paxton?) and the next thing we knew, there were all sorts of nonsense articles and blog posts. For a run down, you can read Chris Skinner’s take (and yes, his is an intentional fake news headline…) and this Bank Innovation piece (Dave Birch: I would love to meet your tailor). In shorter: it was all complete BS. Which was disappointing, but not surprising. I just finished the Michael Lewis book The Undoing Project and the one thing the book taught me was that we are all “confirmation bias” machines. Or as The New Yorker put it: Why Facts Don’t Change Our Minds

As David Rutter pointed out in his blog post last week:

Humans are creatures of habit. As time went on, the term blockchain came to be associated with any type of distributed ledger, even as the technology matured and evolved to meet the needs of different groups of users. This isn’t an issue unique to our space. The marketing team at Canon must have spent countless hours working out how to stop people referring to all copy machines as Xeroxs.

We can see this in two other thoughtful articles that were recently published. Our very own Antony Lewis has a great take on Distributed Ledger Technology for post trade published in Tabb Group…yet the title chosen by the editors was “Applying Blockchain to Post-Trade Derivatives Processing.” Another from CFO magazine includes yours truly and does a great job in explaining why CFOs should pay attention to distributed ledger technology…which they term “Betting on Blockchain.”

Lost in the noise was the release of an 80 page report by the Aite Group. This Coindesk review of the report gives a flavor of the market landscape that Aite explored, including this key quote:

“A growing trend, adopted by five chaintech platforms and spearheaded by R3,” writes Paz, “calls for consensus taking place at the transaction level, requiring the consent of at least two counterparty nodes.”

Another bit lost was our new intro video to Corda, which declares in very plain language what Corda is (and isn’t):

But don’t just trust our word on it. Sign up for Corda training or sign up to our Slack, and see (and debate) for yourself!

Links

The Weekend Read: Feb 19

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by Todd McDonald

R3 in the News

Our CEO David Rutter sat down with Financial News for a very entertaining (and paywalled, sorry) interview that gives more than a few anecdotes on R3 and how we attempted to surf the blockchain hype cycle…all while trying to not get snared in the ‘reef of inflated expectations’ that hides just below the surface. But as Dave says, it is the hardest any of us have ever worked in our careers and yet the most fun any of us have ever had.

Credit Suisse Corda Hackathon in full flight
Credit Suisse Corda Hackathon in full flight

Over the last two weeks, we have talked about our recent work with Credit Suisse on their triple time zone Corda Hackathon, we were very pleased to announce our newest Regulatory Member: Hong Kong’s Securities and Futures Commission, and to read the lessons learned from Bank of Canada’s Carolyn Wilkins on the work dubbed “Project Jasper”, the collaboration w BOC, Payments Canada, R3 and R3 Member Banks to experiment w a DLT wholesale payments system. I wanted to highlight her take aways for the business case below:

We’ve also gained some other important insights that will be relevant to the business case for this type of DLT application:

1. Most cost savings appear unlikely to come in the core system itself, but rather more likely through reducing bank reconciliation efforts. The initial design is quite collateral intensive while the current system is already highly efficient.
2. There’s the potential for more savings if other applications could be built on top of a core cash payment distributed ledger system (eg financial asset clearing and settlement, trade finance).
3. In an actual production system, trade-offs will need to be resolved between how widely data and transactions are verified by members of the system, and how widely information is shared.
4. While DLT may aim to reduce concentration of risk, a substantial amount of centralization would still be required (eg permissioning of nodes and setting of operational standards) if applied to wholesale payments systems.

And a shout out to my colleague, and provider of Slack-Avatars-as-a-service, Gavin Thomas for his post on how he PM’ed the #### out of the Corda open source release: DON’T LOOK DOWN, A PROJECT MANAGER’S SHORT STORY OF OPEN-SOURCING

Industry News

CoinDesk has continued their reporting on the upcoming announcement of Enterprise Ethereum, with two articles this past week, as the group readies for an official announcement soon. We are glad to see that the enterprise blockchain space, both within Hyperledger and the new Enterprise Ethereum, has started to focus on the core requirements of scalability and confidentiality. To echo what our CEO said above, there will be no shortage of hard work involved as the new group “state channels” their inner cat herder.

In another CoinDesk article, Swift’s Global Payments Initiative (GPI) Program Director Wim Raymaekers describes how the project has aimed to improve the current Swift architecture and make payments more transparent by layering on new business rules and a GUI. Raymaekers provided both hope and shade to the blockchain crowd, saying:

[B]lockchain developers will be given access directly to the GPI as part of a hackathon. “We’re going to open those APIs for fintech and blockchain designers to come up with … new ideas,” Raymaekers said.

Overall, while Raymaekers is optimistic about the possibility that blockchain might improve some products, he ultimately sees the need for the tech as limited. He concluded: “We think blockchain today is not ready for wholesale cross-border payments. We are improving that with GPI, so it’s no longer a problem.”

Lots of Links

Here is a quick rundown of other stories from the last few weeks, which features such FoTWR celebs as The Blockchain Beard, lil’ Buterin, The Swanny, and my Snark Sensei

The Weekend Read: Feb 5

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by Todd McDonald

R3 in the News

The R3 team enjoyed a few days this week to ‘geek out’ at the Construct 2017 conference in SF. We were glad to share the insights of our very own Clemens Wan with the wider blockchain world:

In remarks yesterday at CoinDesk’s developer conference, Construct 2017, R3 associate director and former Credit Suisse blockchain architect, Clemens Wan, predicted that 2017 will be defined by DLT pilots, while 2018 will see the technology migrate to production.

The comments come just months after the open-source release of its custom distributed ledger technology (DLT), Corda, became a part of the Linux Foundation-led Hyperledger blockchain project’s collection of enterprise technologies.

Corda (and Intel's Sawtooth) via penchain
Corda (and Intel’s Sawtooth) via penchain

Since then, R3 said it has attracted more than 600 users to its slack channel, and more than 19,000 visitors to its website, Corda.net, as it seeks to reach its next milestone, the release of a test version of its DLT system in the first or second quarter.

In this light, Wan framed R3’s technology as one that requires broader buy-in from enterprises and corporates to achieve a strong network effect and top-level applications. Wan said: “Corda is the Xbox Live, it’s the ecosystem, it’s the connectivity. We want to focus on the platform and services.”

As Clemens points out, R3 will be very focused on building an ecosystem of partners in 2017 and beyond, which follows on from a few of our 2016 announcements of partnerships with the likes of Microsoft and Calypso Technologies. Our goal is to bring both the value of our network and our foundational technology to that partner application ecosystem, so that all participants benefit. If anyone has interest to learn more about our partnership approach, please contact partner@r3.com

We are very pleased to announce the addition of Africa’s largest bank to the R3 family: welcome aboard Standard Bank!

“Collaboration will be critical to unlocking value and we want to be actively involved in exploring and testing how technology like blockchain can be adopted by financial institutions. Being a partner member of the R3 network will provide us with an excellent opportunity to accelerate and enhance our adoption of this new technology,” says Peter Schlebusch, Standard Bank’s Chief Executive for Personal & Business Banking.

And if anyone happens to be attending the FIA-SIFMA Asset Management Derivatives Forum this week, please feel free to stop by and say hello.

Member Spotlight: ING

We are very fortunate to have the chance to work closely with ING across many of our DLT efforts. This article is a very nice overview of not only the hard work being done, but it also gives some well deserved attention to Mariana Gomes de la Villa and the Blockchain Innovation team:

“For us, 2016 was about experimentation and getting to know the technology: how it works, how we can use it and what the pitfalls and limitations are. This technology wasn’t built for the financial industry so there are constraints and it doesn’t always cover our requirements,” Gomes de la Villa explained.

In trade finance, too, where processes are largely paper-based, labour intensive and open to fraud, a proof-of-concept was completed in August. It demonstrated that shared ledger technology could reduce operational and compliance costs of trade financing by 10 to 15 percent and increase bank revenues by as much as 15 percent.

Mariana Gomes de la Villa and the Blockchain Innovation team
Mariana Gomes de la Villa and the Blockchain Innovation team

Blockchain has the potential to profoundly change the financial services structure”, said Ivar Wiersma, head of Innovation at Wholesale Banking. He compares blockchain to that other ‘foundational technology’ that changed the world; the internet. It all started with the birth of email in the 70s, but it took decades before the internet became the basis for many of today’s business models.

“Blockchain started eight years ago with bitcoin. Now we need new developments like smart contracts and digital identity so blockchain can become the technology standard for the next generation.” Wiersma added: “Collaboration is a given. It’s a network, so working on your own is useless. It’s like being the only one with a mobile phone.”

We look forward to highlighting more of our member stories throughout 2017

The Week (or two) in Links

…and completely unsolicited advice for the Big Game: guac over salsa, pilsner over IPA, and never bet against Brady and Belichick (unless the Giants are involved). Go Pats!