Lum Yin Fong, global head of client management and implementation in Global Transaction Services at DBS Bank, talks about how her firm, in conjunction with Standard Chartered Bank and Infocomm Development Authority of Singapore, explored blockchain technology in trade finance.
Global Finance: How did the proof of concept for the Irrevocable Distributable Ledger come about?
Lum Yin Fong: One of the key risks all the banks face in trade finance is the potential for duplicate financing on the same set of invoices and bills of lading. Currently, a bank’s ability to detect duplicate financing is limited to its own database. This makes it possible for a customer to obtain financing from multiple banks using the same invoice.
There is currently no program or common forum for banks to share the details of exporters or specific invoices they have financed, as commercial confidentiality has to be preserved. Using distributed ledger technology, the proof of concept sets out to address the following objectives: prevent duplicate financing; verify commercial information between banks without breaching respective client and commercial confidentiality; deter applicants who resort to duplicate invoice financing; and increase confidence in the authenticity of invoices to be financed by having neutral third parties, such as Singapore Customs, who can verify the authenticity of the trade documents
GF: How will the IDL transform trade finance?
Lum: In essence, the distributed ledger is a replicated, shared ledger, which every participant in the network has a full copy of. The key innovation is in how all the distributed ledgers are securely kept in sync by an algorithm operated by trusted nodes. The basic benefit that distributed ledger technology brings is therefore a single source of trust in the tamper-proof records, a feature we have leveraged in our proof of concept. Other inherent features of the distributed ledger technology include enforcing non-duplicity, irrevocability and self-regulation of transactions. Elimination of reconciliation due to near real-time update of the distributed ledger is now possible too.
The IDL is a shared, trusted, public ledger that runs 24/7, records transactions in near-real-time and which everyone can inspect, but which no single user controls. The participants in an IDL system collectively keep the ledger up to date. It can be amended only according to strict rules and by general agreement. In this way a science that keeps information secret (vital for encrypting messages and online shopping and banking) is, paradoxically, also a tool for open dealing.
GF: What are the next steps required to make it commercially viable?
Lum: Starting with Singapore, we plan to invite more banks and various parties in the trade-finance value chain to join us and evaluate this technology for wide commercialization, improving the country’s standing as a global trade center. With the successful completion of the proof of concept, we will be working toward full commercialization and, most importantly, high adoption and participation from all the stakeholders.