FinTechBlockchainCommerzbank completes first Marco Polo transaction pilot

Commerzbank completes first Marco Polo transaction pilot

Commercial transactions executed via the Marco Polo trade finance network based on blockchain technology.

Commerzbank and Landesbank Baden-Württemberg (LBBW) have – for the first time – successfully executed the necessary data transfers to complete two commercial transactions via blockchain-based trade finance network Marco Polo.

As part of a pilot project, two commercial transactions between the international technology group Voith, and the leading pump and valve manufacturer KSB SE, were mapped using blockchain technology. One transaction involved the delivery of special hydraulic couplings from Germany to China and the other the delivery of pumps within Germany.

In the transactions, order and delivery details were agreed between the companies via the Marco Polo network and the payment term was secured by a conditional payment commitment from the buyer’s bank. After delivery, the corresponding delivery details were entered into the network and automatically matched with previously agreed data, triggering an irrevocable payment obligation on the part of the buyer’s bank. The overall flow of information was efficiently and transparently mapped by R3’s Corda blockchain platform.

“The transaction proves that blockchain technology offers our clients state-of-the-art financing for trade transactions,” said Nikolaus Giesbert, divisional board member for Trade Finance & Cash Management at Commerzbank. “We see a valuable opportunity here to work together to develop and bring to the market innovative trade finance solutions.”

High hopes

Banks such as Commerzbank have high hopes that new technology will streamline and ease commercial payments. In the current model, the number of intermediaries involved, and the large number of physical documents handled, makes securing payments of commercial transactions with traditional instruments highly complex and labour intensive. The DLT platform from Trade IX, the technology partner for the Marco Polo network, makes it possible to secure the transaction by a payment commitment through the digital exchange of trade data, which can also be financed on behalf of the supplier by the supplier’s bank. Financing was also part of the pilot transaction.

In the wake of the successful pilot project, the next step will focus on the complete execution of transactions via the Marco Polo network with a direct connection to the customers’ management systems (ERP integration) in order to offer customers a seamless process. In future, the network is planned to be expanded by further banks and participants from the transportation and insurance sectors so that the entire value chain for foreign trade transactions is represented digitally with data.

Committed to digital

Voith has long been committed to digital communication with banks in the trade finance sector. Both LBBW and Commerzbank are among the approximately 30 banks, which communicate with the multibank standard of SWIFT MT798. Voith has explored the market for current DLT technology solutions and, due to the architecture and variety of current and planned modules, decided to test Marco Polo and the underlying Corda technology as a first step. In doing so, Voith chose LBBW and Commerzbank as agile and active banks.

“The transaction proves that blockchain technology offers our clients state-of-the-art financing for trade transactions”

Gerald Böhm, head of Guarantees and Trade Finance at Voith, commented: “Voith is always interested in innovative technology solutions in the field of finance. The cooperation with LBBW and Commerzbank offers us an opportunity to actively shape and incorporate the company’s perspective into the further development of the products on offer (here the payment commitment). Despite the elation surrounding the successful execution of the first two commercial transactions via the platform, a great deal of work still lies ahead. For example, in spite of the numerous advantages that are independent of the specific platform, standardised global governance must be established for the digital execution of commercial transactions.”

By participating in the project, KSB hopes to bring the conventional principles of trade finance into the digital future. “With Marco Polo we see an opportunity to take a significant step towards increased security, more efficiency and greater settlement speed in the area of payment processing.

It is exciting to see state-of-the-art technologies such as distributed ledger being applied in an area as “outmoded” as trade finance. We would also like to take on a pioneering role in this area in cooperation with innovative partners such as Voith, Commerzbank and LBBW,” explains Ralf van Velzen, head of Export Financing at KSB SE & Co. KGaA.

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