Blockchain Integration in Letter of Credit Processes
Explore a case study showcasing the implementation of blockchain technology in handling letter of credit transactions. From issuance to closure, learn how smart contracts revolutionize the process, offering speed, security, and cost-efficiency in buyer-seller interactions.
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Presentation Transcript
CASE STUDY: LETTER OF CREDIT ON BLOCKCHAIN DINA MERKULOVA ALFA-BANK ATREM TOLKACHEV DELOITTE 1
TRANSACTION DETAILS Instrument: Letter of credit with cash cover Underlying deal: Service contract Legislation: Russian law (RUB LC: 383- ) Other details: - Buyer and Seller are Alfa s customers - the Parties agreed to pay against scanned copies - no partial disbursements - the Parties agreed to dispatch information regarding the deal to Euthereum 2
TRANSACTION STRUCTURE: LC issuance Ethereum Smart contract status: LC OPEN 3. Status request through Blockchain client 2. LC details 1. LC application + cash cover 2. LC notice + hash Buyer Seller Alfa-Bank 3
TRANSACTION STRUCTURE: presentation Ethereum Smart contract status: LC CLOSED 2. Details of documents accepted 3. LC documents 1. LC documents Buyer Seller 2. Payment Alfa-Bank 4
SMART CONTRACT DETAILS Smart contract contains the following fields: - LC amount - Date of issuance - Date of expiry - Issuer INN, Beneficiary INN - Names of Applicant and Beneficiary - Documents to be presented After the documents are presented and accepted by Alfa-Bank, the respective information regarding the compliant presentation is hashed and submitted to Ethereum. Smart contract status changes from OPEN to CLOSED 5
ADVANTAGES OF USING BLOCKCHAIN for LCs SPEED: - Electronic documents fast presentation (hours instead of days) - Smart contracts automated payments - Online real time track & trace of transactions => CHEAPER PROCESS TRUST: Risks and Operational Costs reduced thru the chain Creating a record of ownership in each step Elimination of Fraud - - - 6
Parties agreed on electronic interaction through Alfa Bank IT system and public blockchain. Alfa Bank IT system was used for client-bank interactions Public blockchain was used for buyer-seller interactions LC application LC documents to control the performance of contract obligations Addendum to the Agreement on electronic communications Agreement on electronic communications binding effect
SMART CONTRACT UNDER RUSSIAN LAW Contract Smart contract Voluntary arrangement between two or more parties A computer program that ensures performance of obligations under: - contract - Articles of association - legislation Smart contract may be treated as a way to secure performance of an obligation
QUESTIONS TO CONSIDER Who is liable for discrepancies between contract and smart contract? Who is liable for faults and bugs within smart contract? Who makes entries to the private blockchain? Who holds nodes? Who validates transactions? How will court use blockchain records in case of default of the buyer?
