LC Lite Uses Blockchain To Replace Letters Of Credit With Smart Contractsbr>
Singapore-based invoice finance provider Incomlend is launching a new blockchain platform that will allow importers and exporters to issue, amend, track and execute letters of credit (LC) without the involvement of banks.
Called LC Lite, the new platform connects trade parties directly via a digital solution for cross-border trade transactions requiring LCs, a guarantee for payments made to a specified person under specified conditions. The LC Lite units of exchange serve as means of payment booking for the LC contract, means of ownership transfer and vehicle to trade that contract between different parties on the platform. The process also allows for an LC contract to become a tradable asset between investors.
Due to the nature of international dealings, including factors such as distance, differing laws in each country, and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. Approximately 13 percent of global goods trade is financed by LCs, and banks typically require a pledge of securities or cash as collateral for issuing a letter of credit. Banks also collect a fee for service, typically a percentage of the size of the letter of credit.
According to LC Lite, the new platform will enable trade parties to transfer, track and validate transactional documents directly between one another, replacing traditional banking intermediaries and Interbank (SWIFT) messaging systems. The platform is utilizing smart contracts on a private chain to increase transaction speed, while reducing fraud and double spend. LC Lite includes a network consensus mechanism that authenticates all transactions and LCs by LC Lite approved validator nodes.
“LC Lite will solve many of the current challenges faced with the existing LC model related to funds, delays, fraud and centralisation,” the company said. “Data forgery and manipulation are regular in the current market as there are numerous intermediaries and no information immutability. As a result, 80% of LC documents contain discrepancies when presented to banks, and the costs associated with trade documentation processing and administration represent up to one-fifth of the actual physical transportation costs.”
Dimitri Kouchnirenko, Founding Partner of Incomlend and Co-founder of LC Lite, said that the new platform replaces intermediaries by capturing the unique data of a transaction in an immutable and transparent chain of records.
“LC Lite revolutionizes the Letter of Credit market by offering a secure and cost-effective solution for importers and exporters,” Kouchnirenko said. “Our trading mechanism is designed to provide trust in cross-border trades, allowing trade parties to issue and manage their own Letters of Credit, without the involvement of intermediaries.”