Barclays was a key player in the first global trade transaction using blockchain technology. We look behind the deal and get a glimpse of the future.
A farmer bringing milk and butter to market represents one of the oldest trades in the world. From Roman senators sourcing fine cheeses in Gaul to the island nation of the Seychelles importing tonnes of butter from Ireland, the trade in dairy products has been one of the basics of civilization.
But there was something different about that last trade from Ireland to the Indian Ocean nation – a deal facilitated by Barclays. A blockchain-based letter of credit closed a transaction between Ornua (formerly the Irish Dairy Board) and the Seychelles Trading Company, guaranteeing the export of almost US$100,000 worth of cheese and butter.
The deal – the world’s first blockchain-based global trade transaction – is the latest milestone in Barclays’ pioneering mission to harness a technology that promises to transform trade finance over the coming decade, cutting time and expense from the process.
US start-up Wave, one of many blockchain companies Barclays is developing ideas with, went through the bank’s 2015 New York Accelerator programme, before Barclays swiftly brought their blockchain-based product from concept to reality – culminating in its use in the groundbreaking Ornua-Seychelles trade.
The new platform helps optimise internal processes for banks and reduces the risk of documentary fraud, but the key cost efficiency is in speeding up the time it takes to complete a trade transaction – from as many as 20 days, to just a few hours.
Baihas Baghdadi, Barclays’ Global Head of Trade and Working Capital, explains: “In the best case scenario, the trade finance process for this type of deal takes seven or eight days – when you’ve gone through loading the goods, issuing your invoices, dealing with your home bank, getting those recommendations checked, sending the paperwork to Africa and getting it endorsed by the importing bank. In the worst case scenario, it can take 20 days. Since all this is physical, it’s really difficult to accelerate that process.
“With this new process, it can be done in under four hours. That means a lot. As an exporter, you will know that you have a confirmed payable within the same day. And then, if you need an advance, we can give you the money right away. That is a massive facilitator – not only for the importers and exporters but also for the banks, which can make the funds available on the same day.”