INTERNATIONAL TRADE TODAY - FEBRUARY 2001
An electronic LC?
It’s easy!
For years now the holy grail of international trade has been
the electronic letter of credit. Has it
been found? @GlobalTrade is an Internet-based trade processing system which
makes it possible for a letter of credit to be issued over the Internet from anywhere
in the world. Combined with an
electronic waybill it provides the first fully open, end-to-end electronic
trade processing system.
@GlobaITrade was launched by CEEWeb last September. CCEWeb started life in 1996 as the
Continental Commodity Exchange, an on-line trading exchange founded by Jacob
Katsman and Nick Pachnev. CEO Jacob
Katsman says it quickly became clear that a secure payment mechanism was
essential if this business was to really take off. Credit cards, which have fuelled the B2C market, currently don’t
work at the B2B level, he says. Apart
from the fear of fraud, he says the fees charged to the merchant for processing
the payment, usually 2-4 per cent, make this method of payment too expensive
for most international trade deals.
That’s not to say that the credit card model didn’t have a
lot going for it. In fact VISA is one of CCEWeb’s strategic partners in the
development of @GlobalTrade and it is no coincidence that at the heart of the
system is the eLC Card, in plastic or virtual form, which is issued to the
buyer by his financial institution.
Jacob Katsman says that typically the eLC Card will be used for
purchases of $5,000 upwards but that will depend on the credit limit granted by
the buyer’s bank.
So how will @GlobalTrade work? The buyer and seller come to
agreement about a purchase. The seller,
equipped with his eLC Card or a credit line granted to him by his bank, clicks
onto the @GlobalTrade icon on his screen, through an eMarketplace or through
his bank’s web site, which puts him on line to a Documentary Clearance Centre
(DCC). The DCC checks with the buyer’s
bank, using over 21,000 links already established by VISA, to establish the
credit position and then issues the eDC direct to the seller. Ideally this will
be done electronically, but given the need to service trade with less developed
countries, the credit can be issued on paper via an advising bank. Jacob Katsman says that the important point
here is that the DCC is taking the place of the issuing bank. ‘If we can advise the credit electronically
and direct, it is quicker, cheaper and it makes the chain shorter.’ But will customers be happy to accept
confidential information being sent over the Internet? There is a solution, says Jacob, and it is
ingenious. ‘What we do is email the
buyer and tell him that he has a letter of credit to collect. The buyer then clicks on an icon which
automatically takes him to our secure data center. He can then download the letter of credit. We can track who visited the center, and
when, what they downloaded. It provides a very effective audit trail – the
seller can’t turn round later and say that he hasn’t received the credit.’
The DCC automatically sends the data from the credit to all
the parties who will required to produce documentation. So, for instance, the carrier is
automatically advised of the data needed to complete the waybill or bill of
lading. Direct data interchange is not
only quick, says Jacob, but reduces the possibility of error. Where the electronic links are not in place,
and CCEWeb is currently working with leading carriers, forwarders etc to build
the necessary infrastructure, then it is always possible to revert to
paper. When it is time for the buyer to
submit documents, these are processed by the DCC in just the same way as the
bank would do now, and subject to full compliance, payment is made.
Jacob Katsman says that the system is simple, quick, and
cheap and has the attraction of operation to existing UCP 500 rules. ‘For businesses which are familiar with
using documentary credits, @GlobalTrade will be easy and straightforward
because it conforms to the system that they are already using. For companies which are new to letters of
credit, the system is simple enough for them to use without having to struggle
with the complexities of the paper documentary credit. Our FastTrack eDC offers the user a
pre-defined application form with prescribed documents. If the seller wants to use alternative
documents he can use the Standard eDC.
This is a very flexible system and it is aimed at existing documentary
credit-intensive business, who will see
major benefits in terms of convenience and speed. But it will also be attractive to the growing community of
businesses which are new to international trade.’ In particular SMEs, he says,
who are looking for simple, low cost solutions. ‘This is A much more secure way to trade than paying cash in
advance and many buyers that were afraid to use paper documentary credits will
adopt this system.’
No investment is required by the trader, there are no
commitment or membership costs, and just a straight transaction fee. ‘We think it is a big selling point that the
trader can try the system without having to pay up front.’
Trials of @GlobalTrade are currently under way and the
system is expected to go into live operation in the autumn this year.
[FEBRUARY 2001 INTERNATIONAL TRADE TODAY]