The Commonwealth Bank, Wells Fargo and Brighann Cotton have successfully made the first global trade transaction between two independent banks using blockchain, smart contracts and Internet of Things (IoT).
The transaction involved a shipment of cotton, using an open account transaction, executed through a collaborative workflow on a private distributed ledger from Skuchain’s Brackets system. The parties include Brighann Cotton in the U.S. as the seller; Cotton Marketing Australia as the buyer; and Wells Fargo and Commonwealth Bank as their respective banks.
The trade uses a physical supply chain trigger to the terms of the transaction in order to confirm the geographic location of the goods in transit, before a notification is sent to allow for release of payment.
Using blockchain, smart contracts and IoT, the transaction added new dimension, providing all parties with greater certainty compared when compared with traditional open account and trade instruments like Letters of Credit, which focus on documents and data.
"The combination of these emerging technologies could eliminate many inefficiencies currently experienced in international trade. The benefits of lower costs and improvements to security through reduction of errors, risk and time, enable a company to achieve greater efficiency and have more predictable working capital," said Cameron Austin, General Manager at Brighann Marketing Inc..
"Existing trade finance processes are ripe for disruption and this proof of concept demonstrates how companies around the world could benefit from these emerging technologies. We strive to stay at the forefront of disruptive technologies to understand how they can be used to enable greater efficiencies and solve the real world challenges our customers face. The interplay between blockchain, smart contracts and the Internet of Things is a significant development towards revolutionizing trade transactions that could deliver considerable benefits throughout the global supply chain," said Michael Eidel, Executive General Manager of Commonwealth Bank’s Cash-flow and Transaction Services.
"Wells Fargo is committed to exploring emergent technologies and innovative concepts that benefit our customers. In this case, we demonstrated how a new approach to trade could benefit a joint Wells Fargo and Commonwealth Bank customer, Brighann Cotton. This marks another step in evaluating technology that, over time, could support the evolution of trade finance. While significant regulatory, legal and other concerns remain to be addressed with the technology, we are committed to engaging with our partners to explore potential applications within trade finance," said Chris Lewis, Head of International Trade Services for Wells Fargo.
Realizing this success, Commonwealth Bank and Wells Fargo plan to continue their collaborating with trade finance clients, financial institutions, fintech companies and consortiums, as well as players in the insurance and shipping industries, to ensure their clients benefit from the changes in these technology advancements.
Since 2015, a number of banks, companies and startups have focused on applications for trade finance. The idea is that a distributed database like blockchain can form the foundation of a digitized supply chain to eliminate potential fraud.
This is because blockchain technology creates transparency between buyer and seller, a higher level of security and the ability to track a shipment in real time. As an added benefit, it also reduces errors and significantly faster than paper ledgers using manual trackers (minutes opposed to days).
