Microsoft and Bank of America to develop blockchain for trade finance

Current trade finance processes are highly manual, time-consuming and costly, Microsoft said. With blockchain, processes can be digitised and automated, transaction settlement times shortened, and business logic applied to related data, it said.

Blockchain distributed ledger technology is best known for underpinning trading involving the digital currency bitcoin, but it has many other potential uses. Broadly it can be likened to a type of database that, using cryptography, can be operated as a digital public ledger for recording information, such as the transfer of assets between two or more parties.

Microsoft's own treasury experts will act as test clients, establishing the first Microsoft Azure-powered blockchain transaction between a major corporate treasury and a financial institution, the company said. 

The first test will be to optimise Microsoft's standby letter of credit process, it said. This is currently being developed and tested, it said.

Amy Hood, chief financial officer at Microsoft said: "By working with Bank of America Merrill Lynch on cloud-based blockchain technology, we aim to increase efficiency and reduce risk in our own treasury operations."

"Businesses across the globe, including Microsoft, are undergoing digital transformation to grow, compete and be more agile, and we see significant potential for blockchain to drive this transformation," Hood said.

Microsoft Azure Blockchain as a Service was first introduced in November 2015. More than 80% of the world’s largest banks and 75% of the global systemically important financial institutions are Azure customers, Microsoft said.

Financial technology expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com said: "Reconciling the needs of importers and exporters is a key example use case for the usefulness of these technologies. It seems that financial organisations that can work effectively with leading cloud providers will have an advantage, as at the end of the day in the future, all of fintech will be powered by the cloud.”