Contour goes live, making blockchain-based trade finance a reality
October 5, 2020
Blockchain trade finance initiative Contour has now left beta, bringing the decentralised, digital trade finance platform into full live production.
Owned by eight shareholder banks – Bangkok Bank, BNP Paribas, CTBC, HSBC, ING, Standard Chartered, SEB and Citi – Contour delivers a global network for trade finance over distributed ledger, which allow parties to transact and view information securely.
Contour started life as Voltron – a prototype trade finance application built on R3’s Corda platform in mid-2017. Launched a year later at Sibos in Sydney, it then underwent an extensive period of testing by over 80 banks and corporates, with trials in 17 countries and transactions spanning commodities, petrochemicals, energy, metals, retail goods and textiles, before going into commercial beta as a standalone legal entity at the beginning of this year.
“Every time we did a transaction, we carried out a review, and we have been taking on all those inputs and learning from them,” Carl Wegner, CEO of Contour, tells GTR. With banks and corporates initially using Contour to manage the letter of credit (LC) process, one of the key areas of work has been around the legal framework, especially since, although it is technologically possible to execute transactions using negotiable instruments registered via blockchain technology, in many jurisdictions these are recognised only if they are on paper and signed, hindering the advancement of many digitisation initiatives.
To tackle this, as part of its live launch, Contour’s members and pilot testers have developed a rulebook and membership agreement, which Wegner says is “robust, but as simple as possible”.
Speaking to GTR, Vinay Mendonca, global head of product, propositions and structuring, trade and receivables finance at member bank HSBC, says: “The rulebook is really important. Rather than having to string together four or five different legal agreements between buyer, seller, buyer’s banks and seller’s banks, which was very onerous, we now have a rulebook which makes it very easy for everybody to sign up and know what their roles and responsibilities are.” He adds that this rulebook runs alongside the tried and tested ICC Uniform Customs and Practices (UCP) used for documentary credits.
On the tech development side, security has been a central concern. “We wanted to make sure that the production version is something that a bank is comfortable installing,” says Wegner. “We have been doing a lot of work on two-factor authentication, and on different security penetration testing, which are some of the things that the bank would need to tick off from the IT perspective for us to be a certified vendor.”
For now, Contour’s central offering will remain the LC, for which the network has managed to reduce processing time by as much as 90% during testing, from an average of 10 days to under 24 hours end-to-end. However, Wegner says that the network will be adding further modules in the near future. “We are adding bank guarantees by the end of this month or early November,” he says, noting that the credit guarantee transaction completed with the Asian Development Bank (ADB) in September also opens up another opportunity.
Contour is also actively working on bringing in partners to provide additional functionality. These include order management partners, such as supply chain data firm Chinsay, and paperless trade enablers essDocs and Bolero, which have integrated their electronic bill of lading capabilities into the network. “There are a lot of different things that are peripheral to the LC or services for a specific industry that we don’t want to build ourselves, but that partners can provide,” says Wegner, who adds that Contour is also in talks with potential partners who offer services such as document and sanctions checking.
The potential efficiency gains from automating trade finance processes are enormous in terms of human labour, cost and effectiveness, and hopes are high that by digitising the letter of credit, the industry can mitigate the significant cost build up that it has borne over the years through increased manual checks.
But the race to bring trade finance into the digital age has seen the emergence of numerous digital islands, with concerns being voiced by many in the industry that none would reach the critical mass necessary to be transformative. Although Contour has carried out tens, rather than thousands, of transactions, those involved in the network say that it has sufficient buy-in to make a real difference.
“I am struggling to think of another platform that has got so many banks onboard across different corridors and clients that have already undertaken live transactions and seen the value from it. So, for us, there is the necessary catchment and foundation to drive scale,” says Mendonca, who says that HSBC now plans to move all of its regular documentary credit clients onto the network and is also asking its financial institution clients – particularly in large documentary credit issuing markets such as India, Vietnam and Bangladesh – to join the platform and support flows.
While Contour has not made the names of the banks that have joined public, GTR has learned that they number around 20, and include SMBC, DBS and Standard Bank – in addition to the eight investor banks. Joining the network means paying membership dues, and then a per-transaction fee for both corporates and banks. Contour has not made its pricing public, but says that it is “not prohibitive”, even for smaller banks.
Still, the focus for the coming months will be on attracting more banks to onboard – which Wegner tells GTR is well underway.
“We are seeing a lot of interest from a lot of different banks, and they are joining in three ways,” he says. “First, because of the incredible support of our investor banks, who are introducing other banks. Second, banks join because they have an innovation department that sees this as a trend and they want to learn and they want to offer this to their customers. Third, banks more and more often are joining up because of corporates asking them to join. The corporates are the ones that are really mostly bringing in the banks now,” he says.
New and existing users will now start the process of migrating to the live production environment, which will be rolled out this week.