National Bank of Canada Trials Blockchain for Standby Letters of Credit

Commercial bank National Bank of Canada is working with IT consulting firm CGI and blockchain startup Skuchain to trial blockchain for operations involving standby letters of credit and guarantees.

Canada-based global IT consulting and outsourcing firm CGI said that it had partnered with National Bank of Canada – the country’s sixth largest commercial bank – and blockchain firm Skuchain to trial distributed ledger technology (DLT) in a project revolving around negotiation standby letters of credit and guarantees.

The standby letter of credit is as a guarantee of payment issued by a bank on behalf of a client. It acts as a loan of last resort in which the bank has to meet the payment obligations in the case when their client cannot do it. 

These kinds of agreements are traditionally carried out through emails, which makes them vulnerable to errors and delays. By leveraging blockchain, the parties can benefit from a high degree of transparency and reduced human error.

Under the trial project, National Bank of Canada experimented with a solution that had the CGI Trade360 trade finance platform integrated with Skuchain Contract Builder, an application developed based on the startup’s blockchain platform called Brackets. The integration allows the bank to offer trade finance services on a blockchain-based B2B solution, which helps clients access the services digitally. The platform enables customers to launch, execute, and conclude negotiations of standby letters of credit and guarantees via smart contracts. The latter represent blockchain-based features that can automate the negotiation steps, ensure transparency, and cut out intermediaries among others. 

Patrice Roy, VP of National Bank of Canada’s Payments, Cash Management and International Solutions, commented:

“This pilot project is a great opportunity to leverage blockchain technology to simplify the process for negotiating standby letters of credit and guarantees while making it more transparent and secure. This will enable us to offer a simple, fast and efficient experience to our commercial clients which facilitates managing their business.”

Frank Tezzi, CGI’s VP of Trade and Supply Chain Solutions, stated:

“The use of blockchain offers a shared ledger that serves as the single source of truth during pre-issuance negotiation and through issuance and re-issuance processes.”

“This example provides certainty and transparency for beneficiaries regarding the guarantee process as they enter into a financial transaction,” he explained.

In April of this year, National Bank of Canada tested blockchain for debt issuance in collaboration with JPMorgan, Goldman Sachs, and pharma giant Pfizer.

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