A new prototype developed by Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore (IDA) may have brought the use of blockchain technologies in letter of credit (L/C) transactions a step closer.

The prototype lets exporters, importers and their banks share information on a private distributed ledger and involves a seven-step process.

Importer applies

Firstly, the importer creates an L/C application for the importer bank to review and stores it on the blockchain.

The importer's bank is then messaged to review the application and can approve or reject it based on the data provided. Once checked and approved, access is then provided to the exporter bank automatically for approval.

Exporter response

Next, the exporter bank approves or rejects the L/C application. If approved, the exporter can view the L/C requirements.

The exporter then completes the shipment, adds invoice and export application data and attaches a photo image of any other required documents. Once validated, these documents are stored on the blockchain.

After that, the documents are viewed by the exporter bank, which approves or rejects them.

Reaching completion

The importer bank then reviews the data and images against the L/C requirements, marking any discrepancies for review by the importer. When approved, the L/C goes straight to completed status or is sent to the importer for settlement.

Finally, and only if required due to a discrepancy, the importer can review the export documents and approve or reject them.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.