Towards a new LC #newLC #whitepaper #fintech
A while ago, I published a whitepaper on Linkedin in which I discussed some features of the new LC, under its electronic form.
Please see the link: Reshaping Trade Finance - Towards a "new" Letter of Credit.
Basically, my goal was, and still is, to discuss how these new technologies will impact on the current legislative set-up in trade finance.
Will the principles of autonomy and strict still be valid? or, as the new tech will deeply involve "physical" factors, shall the institutions shift towards "new principles" as well. Also fundamental, in my personal opinion, is to understand whether we are talking about an evolution of an ancient product or totally new product.
As I shortly discussed a part of these issues, it came out that the Blockchain process I described already exists on Voltron (pilot) with the difference that LC terms (except for any bank to bank instructions) are first agreed between buyer and supplier, prior to involving a bank. I quote literally one the messages I exchanged with one of my contacts "Furthermore, the biggest weakness in current SWIFT based LC processing is the lack of (structured) data inheritance between an accepted PO, the LC using that data and the subsequent presentation. After all those years, the Goods Description, Additional Conditions and Documents Required in an MT700 are still a big block of unstructured text. What an anachronism! We can talk about digitisation and blockchain as much as we want, but that needs to be fixed. The fact is though that the electric light we use today is not a result of continuous improvement of candles. The true game changer will be the acceptance of digital trade assets, which will allow a ‘source to settle’ digitisation approach, i.e use of structured PO/sales agreement(s) to generate an LC, use the LC to generate document presentations, and use the invoice to auto-generate the payment and subsequently reconcile everything in the opposite direction."Very glad to share with any comments or ideas on how to start achieving these goals.
Have a very day.