The founders of global invoice finance provider, Incomlend, are launching a new platform built on the blockchain, bringing the benefits of an immutable and decentralized system within the annual $2.3 trillion Letters of Credit (LC) market
Approximately 13% of global goods trade is financed by LCs. LCs are a financial instrument to guarantee payment from an importer to an exporter upon documentary proof of a shipment’s consignment, so guaranteeing payment in advance of final delivery. In this process, financial intermediaries – usually banks – manage the financial execution of the trade on behalf of the importer (buyer) and exporter (seller), who jointly agree the terms set out within a LC.
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 units of exchange circulate only within the LC LITE ecosystem and are based on the intrinsic demand for opening and processing LC contracts. The units of exchange basically allow for an LC contract to become a tradable asset between investors.
LC LITE will solve many of the current challenges faced with the existing LC model related to funds, delays, fraud, and centralization. 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.
LC LITE’s new platform enables trade parties to transfer, track and validate transactional documents directly between one another, replacing traditional banking intermediaries and Interbank (SWIFT) messaging systems. Transactions occur via a secure LC LITE smart-contract on a private chain, increasing speed, while reducing fraud and double spend. The platform includes a network consensus mechanism that authenticates all transactions and LCs by LC LITE approved validator nodes.
Dimitri Kouchnirenko is the Founding Partner of Incomlend and Co-founder of LC LITE. He has more than 19 years of experience, including 10 years in transaction banking and trade finance. Kouchnirenko commented on the news:
“Letters of Credit are a huge market, perfectly suitable for implementation on distributed ledger technologies. LC LITE’s blockchain typically replaces intermediaries by capturing the unique data of a transaction in an immutable and transparent chain of records. Its smart, self-executing contract features perform transactions automatically upon fulfillment of specified conditions in a digital Letter of Credit between the buyer and the seller.
“Reducing errors, discrepancies and fraud are major benefits of our blockchain solution. The cryptographic security underlying blockchain technology renders trade transaction records stored on blockchain tamper-proof, reliable and verifiable by all parties at all times.”
LC LITE is in a strategic partnership with Coinsilium Group, a London-listed crypto investment and advisory firm.
LC LITE ensures that the platform incentivizes importers, exporters, and investors. The solution improves cash flow for importers and exporters through early payment from the trading mechanism deployed on the platform.
In the LC LITE ecosystem, importers and exporters will directly establish smart contracts digitally replicating the LC instrument. Once the contract is digitally sealed, importers submit the title to the trade to investors for the corresponding value. Then, this contract value will be conditionally credited to exporters. The amount will appear on the exporter’s eWallet and will be released once trade conditions are met, guaranteeing payment for the exporter. The title and LC value will also appear on the investor’s eWallet as due for payment by the importer. Once the goods have been shipped, exporters also have the added benefit of being able to sell their units of value through the LC LITE marketplace to other participants within the ecosystem, thereby obtaining early cash on the payment due. Holders of the contract title will be able to discount it for early cash as well.
LC LITE was created by the founding members of the trade finance provider, Incomlend. Incomlend is a global invoice exchange that allows trade parties to obtain early cash in exchange for their cross-border export receivables. Incomlend currently processes funding volumes worth approximately $240m annually and plans to reach more than $1bn in the next three years.
“LC LITE revolutionizes the Letter of Credit market by offering a secure and cost-effective solution for importers and exporters. 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.
“LC LITE is built on the trade experience, commercial networks and technical understanding of Incomlend’s founders. We are excited to be part of a growing and vital market for Letters of Credit as it is a perfect real-world application for the use of blockchain technology. LC Lite’s digital LC product suites complement perfectly with Incomlend’s global invoice discounting offering.”
The company will deploy its solutions globally, with priority regions in Asia and the Middle East, including Hong Kong, Singapore, China, Japan, South Korea, and India.