On Monday, Citi India announced the successful completion of its blockchain-based transaction for its client. Citi completed its first blockchain-enabled Letter of Credit (LC) transaction for its client Cummins India Limited (Cummins), a diversified industrial manufacturing company.
A letter of credit, or a credit letter, is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. The transaction is a first for Cummins and Citi India on Contour, a global digital trade finance network, powered by blockchain technology.
Contour enables multiple parties like banks, corporates, and logistic partners to collaborate seamlessly and securely in real-time on a single platform. Citi is a founding member bank of the platform. Contour’s decentralized global trade finance network has proven that LC processing time can fall by as much as 90 percent.
Notably, the use of blockchain proved to save a huge amount of time. Under the LC, document presentation usually takes 5-10 days, while for Cummins it was completed in three hours. This marked the first domestic end-to-end blockchain-enabled LC transaction completed on Contour.
Mridula Iyer, Head of Treasury and Trade Solutions, Citi South Asia, said that their priority is to simplify trade processes and reduce transaction time, as well as provide clients access to trade financing and working capital solutions, through digital platforms. She adds:
Platforms such as Contour bring together multiple partners involved in a trade transaction while eliminating the need for paper-heavy documentation and is a critical enabler of trade digitization. We are extremely pleased to be able to partner with Cummins and Contour in executing this transaction.
Citi has often been seen engaging with the crypto and the digital assets sector at large. A few days back, the bank forecasted that tokenization of real-world assets will be the next “killer use case” in the crypto world.
In large, with the growing prominence of blockchain technology, more and more financial institutions have come forward to show interest in the technology. In January, a Swiss private bank called Cité Gestion announced that it has started tokenizing its equity using blockchain technology. It is the first private bank to issue shares as ledger-based securities under Switzerland-based laws.
Sources reveal that with tokenization, the bank’s share registry will automatically and continuously update itself whenever a share transfer happens or capital increases. This would help the bank in managing primary and secondary market transactions in a wholly digital manner.
Last year, JPMorgan collaborated with the central bank of Singapore to participate in its first-ever decentralized finance (DeFi) transaction. The pilot program’s goal was to identify the potential use cases of DeFi applications in the financial markets. Additionally, it was an asset tokenization and international transfer experiment.
Notably, the Global financial messaging service, SWIFT, or the Society for Worldwide Interbank Financial Telecommunication partnered with Chainlink to develop a blockchain-based money transfer service. Moreover, the company aims to cater to financial institutions with the ability to transact across blockchains– just like blockchain bridges.