Beefing Up Open Account Trade with Blockchain Technology

Moving and marketing in excess of 100,000 tonnes of meat products annually throughout the world, GPS Food Group was keen to find an innovative way to make its open account trade transactions faster, safer and more competitive. The company recently participated in a successful pilot of the we.trade blockchain platform, a collaboration between HSBC and eight consortium banks, to do just that.

As a specialist business that manages the procurement, production, logistics and marketing elements of the supply chain for the meat trade, GPS Food Group (GPS) has operations in every corner of the globe: from the UK and Ireland, to Norway, South Africa, China, and Brazil. Many of the geographies in which the group operates favour open account trade, introducing a variety of risks into the financial supply chain that need to be carefully managed.

Padraig McCarthy, Director, at GPS explains: “Trading internationally always carries risks – from late payment to non-payment, as well as the challenges around unknown counterparties. Another growing concern is fraud. Like any business, we have been contacted by criminals endeavouring to extract funds through fraudulent invoices. A number of our customers have also been victims of fraudulent activity, whereby emailed invoices have been intercepted and bank account details changed, so we are very conscious of the need for greater security in all trade transactions.”

As such, GPS was looking for new ways to improve its international trade processes. “We were interested in the blockchain concept because of the transparency and security it offers. When HSBC approached us about joining the we.trade pilot, it was something that we were keen to get involved with. We already had a great relationship with HSBC, they knew our business well, we worked with them in a number of regions, and we were aware of the development they were doing with IBM on this project. So, for us, it was a great opportunity to try out an innovative solution with a respected and established international partner,” says McCarthy.

Kickstarting the pilot

GPS had a number of in-depth meetings with the HSBC team before getting the ball rolling on the pilot. “The first task was to identify counterparties from our customer and supplier bases who were already HSBC clients – the initial plan was for this small-scale pilot to test the technology and see if it could later be expanded to other banks,” McCarthy notes.

After much consideration, GPS chose to engage with a third-party customer in the UK, Paragon Quality Food, to execute two open account transactions via the we.trade platform. Keen to try out the international dimension, however, GPS also selected an internal supplier based in Ireland to participate in the pilot. For the latter transaction, GPS chose to use a BPU (see box 2 for more information) – which is one of the unique features of the platform.

Naturally, there was some manual work required to get the pilot off the ground. “At the moment, we.trade is a standalone web portal – so we had to manually input the details of our counterparties into the platform. And, of course, we performed rigorous data checks before we populated an actual transaction,” says McCarthy.

“Once the details of a relationship are set up, however, it is possible to transact on an ongoing basis –  there is no need to re-key information for individual transactions with that counterparty.” The longer-term plan for we.trade is to enable the platform to integrate more directly with ERP and/or TMS systems and eliminate the manual aspects.

With the information populated and the data checked, GPS then executed the pilot transactions. “We received a payment through the portal and we also made a payment. It was extremely simple and painless. Once each transaction was confirmed and the payment terms were agreed, the transaction happened automatically. Funds were transferred without having to undertake any further action – no payment needed to be initiated, since it is all automated,” notes McCarthy. This ‘self-execution’ is enabled through so-called smart contracts, which trigger payment when pre-agreed parameters of the contract are met. 

Reaping the rewards

Daniel Barr   Director, Global Trade and Receivables Finance, HSBC

“Although the GPS pilot was relatively small-scale, it proved that the technology works,” says McCarthy. The company saw numerous potential benefits, he says, including simplifying the process of open account trade, and digitising transactions from start to finish. “But one of the most impressive aspects for us was the security and certainty the platform brings. There is just one trigger point for transactions. Moreover, bank- and transaction details are confirmed within a secure environment – which means that there is less likelihood of fraud or disputes.

“Thanks to the visibility the platform brings, you also have the security of knowing that the transaction loop is complete, which can lead to opportunities for improved cash flow management. There are softer benefits too: if, as a counterparty, you can offer security of payment from customers and to suppliers, then that could potentially improve trading relationships.”

Building on the success of the pilot, McCarthy is keen to see the we.trade platform become more widespread, which may well go hand-in-hand with the platform’s ability to integrate with other technologies. “We are really impressed with the platform thus far and HSBC has committed significant resources to making it a success – including working with customers to get the platform up and running.

“I have no doubt that it will evolve into a more widely used solution – but it already represents a key milestone in the use of blockchain technology within the world of trade finance. And GPS is delighted to have been able to take part in this successful pilot.”