Formally launched back in 2013, Bank Payment Obligation (BPO) was praised as a new and revolutionary way to optimize trade flows between banks due to its use of an electronic matching engine in the verification of trade documents. While traditional trade finance has either been conducted on a letter of credit (LCs) or open account basis, the BPO solution aimed to combine both the flexibility of open account with the payment certainty of LCs.

Last year we saw Commerzbank and ICBC process the first BPO transaction between Germany and China for Trigon Chemie and an unnamed Beijing-based seller.

Since the emergence of BPO, the trade finance solution has yet to live up to its initial hype. Though high-profile companies including 7-Eleven and BP have enabled BPO functionality, the Swift-backed product has seen a low volume of transactions. This could indicate the lack of appeal in changing trade finance procedures despite having standardized BPO rules setup by the ICC (the International Chamber of Commerce) back in 2013.

More recently blockchain, otherwise known as distributed ledger technology, has taken the spotlight away from BPO due to its ability to verify trade transactions, not only between banks but also among various stakeholders involved in the supply chain, such as custom agencies and port authorities.

Like the BPO, the true measure of the blockchain-based trade finance solution will rely on whether companies see value in this solution. At the moment, it appears that banks and governments are favourably approaching the blockchain trend.

Dubai’s government recently announced that it would form a trade finance partnership with IBM in the testing of blockchain technology. Several key market stakeholders are involved including Dubai Customs, Dubai Trade, Banco Santander and Emirates NBD.

Moreover, last August in Singapore the IDA (Infocomm Development Authority of Singapore) along with Bank of America Merrill Lynch and HSBC revealed that they had created a prototype trade finance solution built on blockchain technology. With several financial regulators around the world supporting blockchain development, one optimistic trade finance banker for an international bank believes that blockchain can be more sustainable than the BPO solution.

“There is a lot more sponsorship now from regulatory bodies to see what can be done with blockchain,” observes the banker. “Compared to BPO, the blockchain is being driven by a broader set of communities, while when BPO started it was largely a bank driven solution, trying to solve the banks’ problems and not the customers’ problems.”

The question now for blockchain-based trade finance technology going forward is whether it can first establish some standardized rules regarding usage. The R3 blockchain consortium founded in 2014 is just one of the many groups aiming to set up universal blockchain standards.

There is also the tricky issue of technology scalability. Though blockchain transactions on a smaller scale between various banks and organizations is a step in the right direction, it is nowhere near the technological challenge of operating a global distributed ledger. However, if blockchain navigates these hurdles, it has a higher chance of success than previous trade finance solutions.