Letters of guarantee and blockchain platform
When you consider the risk of fraud associated with paper-based operations, the case for blockchain becomes even stronger. Financial instruments heavily reliant on paper, particularly those involving back-and-forth agreements between parties, are ideal candidates for digitalization and blockchain. A bank guarantee, often known as a letter of guarantee, is one such instrument.
Bank guarantees make it easier to do business by establishing confidence between two parties, such as a vendor and a buyer or a landlord and a tenant. If the buyer defaults or the renter fails to pay the rent, the bank fulfills the guarantees of reimbursement. A letter of guarantee also covers performance, ensuring that the beneficiary is protected in the event that the other party fails to deliver a product or offer good service.
The concept of a bank guarantee is commonplace in the industry, but its implementation is not. Every bank has its own set of different rules, forms, and procedures. Before reaching an agreement, there may be several drafts and negotiations, and if adjustments are required, the entire process must be repeated. Generally, issuing a one-page agreement can take up to a month.
Transparency, simplicity, and efficiency will be added to every financial transaction.
Another major annoyance is the paper document itself, especially for beneficiary companies that deal with thousands of assurances. It’s up to you to manage and secure that final printed document. Maintaining an audit trail once the final guarantee has left the bank is difficult. Fraud and forgery are commonplace due to the ease with which a paper document can be falsified.
Benefits of a blockchain-based letter of credit solution that have been proven
- Streamline the procedure from beginning to end.
- Printing, issuing, trading, and retrieving tangible papers are no longer necessary.
- Disputes and human data entry errors are less likely.
- Encryption and tamper-evident distributed ledger technology improve security.
- Reduce the risk of fraud by implementing a transparent process that anybody with permission can audit.
Letters of guarantee and blockchain: How does it work?
You need to have a repeatable solution that digitizes the end-to-end process of seeking, approving, updating, issuing, and storing letters of guarantee, built on the Blockchain Platform. Typically, Blockchain Services will collaborate with a group of financial institutions and high-volume beneficiaries to customize this solution to their agreed-upon standards and processes.
A user-friendly web interface, a digital process, and a framework for codifying uniform terms and conditions are all part of the solution. Smart contracts on the blockchain encrypt those agreements, resulting in legally binding contracts and automating workflow stages to speed up the approval process. Encryption and unchangeable data storage are provided by blockchain technology, which helps to prevent fraud. Every permission entity involved in issuing a letter of guarantee — requestor, bank, and recipient — can check the status of an application or view the final digital document thanks to transparency.
Thailand is advancing blockchain-based financial services.
The Thailand Blockchain Community Initiative, currently known as BCI (Thailand) Co., Ltd., was founded with the goal of creating a blockchain-based network that would facilitate electronic letters of guarantee (eLG). Currently, the platform is used by 22 banks and 15 enterprises to support payment responsibilities for enterprise auctions and other domestic trading operations.
The platform decreases the time it takes to issue a letter of assurance to less than a day, and some members report a 200 percent savings in transaction expenses. For all parties concerned, the solution is meant to minimize the risk of errors and fraud.
BCI’s eLG services are simple to implement for large, medium, and small businesses in Thailand. Clients can access the BCI portal in a variety of ways, including private on-premises access, cloud access, and cloud broker access. BCI’s blockchain platform has advanced capabilities such as real hybrid cloud and multi-vendor capabilities, disaster recovery, and multi-region high availability.
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Building on the experience and assets, digitizing paper operations in the banking industry.
The system for electronic letters of guarantee is both repeatable and expandable. It can swiftly duplicate the solution for other financial institutions and other companies because they’ve already established it for existing clients. Terms and conditions regulations, codified procedures, user interface templates, and APIs for interfacing with existing systems of record can all be tailored for your specific business ties and possible participants.
The platform can also be expanded. You and all the partners can use the platform to grow into new areas, automate other paper-based financial processes, and provide new services to clients once your solution is in production. Organizations can get from concept to functioning pilot in as little as three months by leveraging an existing customizable solution and Blockchain Services’ expertise. After you’ve applied what you’ve learned from the pilot, you can start scaling up by adding new people to the network.
The Blockchain Platform, a commercial release of The Linux Foundation’s open-source Hyperledger Fabric, serves as the foundation for the solution. The Blockchain Platform is cloud-agnostic, meaning it may run on-premises or in any cloud. Each participant in the blockchain network can store their data on their own IT infrastructure or with a third-party cloud provider. Because the platform complies with GDPR, it is able to facilitate international business connections.