How Incremint.io can be used for providing distributed ledger bank guarantees.
Banks don’t compete very hard in the market for bank guarantees, and clients don’t get the full benefit of an open market. Incremint.io is a fintech startup developing a smart-contract solution that can disrupt the market for bank guarantees, opening the financial product up for broader participation and enabling a more competitive dynamic for customers.
Blockchain has already been deployed by HSBC in the administration of letters of credit, facilitating a transaction with Cargill in the shipment of soybeans from Argentina to Malaysia earlier this May. This is just the beginning for smart-contracts in such applications.
Bank guarantees come in many shapes and forms but the concept is relatively simple. A financial institution promises to cover a loss if its client, a party to a commercial transaction, does not fulfill its obligations as agreed. The underlying obligations can vary from the repayment of a loan to the performance of a service or delivery of goods. The client buying the bank guarantee in many cases is a relatively small counterparty in a transaction with a relatively high credit risk. The financial institution providing the bank guarantee, with a much lower credit risk, gives comfort to the other party in the transaction that obligations will be met or a payout will be made.
Blockchain can open this financial transaction to a broader pool of contributors, in a way which would not be feasible in the closed world of fiat.
Here is an example. Buyer enters into an agreement with Vendor but requires that Vendor provide a bank guarantee to mitigate risk of non-performance by Vendor. Vendor comes to Incremint and pays a fee which is lower than it would pay to a bank due. Incremint pools the funds from an open financial community in the crypto ecosystem that wants exposure to such transactions, and deposits the funds in an escrow multi-signature wallet. When the transaction is concluded as per the agreement, the funds are released back to the investors. In the rare circumstances where a Vendor fails to perform, Incremint will monetize the collateral provided by the Vendor in the same way that a bank would.
Smart-contracts and distributed ledger technology have almost limitless capabilities to disrupt age-old banking products. Incremint is positioning itself as a fintech player leading this charge to open markets for the benefit of all parties in such commercial transactions with lower costs and greater efficiency.