Lloyds Bank Makes UK’s ‘First’ Digital Promissory Note Purchase

Promissory notes have been around for nearly 4,000 years, and this pilot has no time for the past.

Things are looking promising as Lloyds Bank has completed the UK’s “first” transaction using a digital promissory note purchase. 

Under legal guidance, Lloyds developed a digital promissory note – a solution that works within contract law and uses the International Trade and Forfaiting Association’s (ITFA) dDOC specifications, under the Digital Negotiable Instrument Initiative (DNI).

The bank completed a pilot transaction, which is the first under the DNI initiative, and a “key milestone” in the digitisation of trade finance. The transaction was initiated and completed within a day and involved the sale and purchase of land worth £48 million between several UK businesses.

The bank’s promissory note was issued using Stockholm-based Enigio’s solution, trace:original, for digital original documents.

The new solution provides a same-day payment to the vendor by removing the need to physically transfer actual notes.

Gwynne Master, MD, Lending and Working Capital for Lloyds Bank, explains: “Promissory notes are an important tool for businesses that undertake large transactions but are a relatively niche solution. Their use allows purchases to progress where shortage of cashflow may otherwise prevent them. Until now, this industry-side solution is typically slow, expensive, and administratively cumbersome.”

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As the bank points out, promissory notes have been around for nearly 4,000 years, and are used to complete transactions in lieu of cash. In a modern setting, their use is typically limited to large transactions that often involve the sale and purchase of property.

The use of promissory notes allows sellers to be paid, based on the creditworthiness of the purchaser. The purchaser can obtain goods and/or services with a note, rather than needing to have funds on hand. The process involved in issuing, authenticating, and paying out on promissory notes is little changed since their inception.

The use of promissory notes in the UK is governed by the Bills of Exchange Act, which Lloyds reckons has “hindered innovation due to the requirement that notes are a physical entity.” The transfer of a physical paper note between banks and notaries means it can “take a week, or more, for businesses to be paid”.

According to the bank, the DPN transaction has been completed as part of its ongoing digital strategy and paperless trade plans. Lloyds – like many other banks and firms – is looking for profit and action from trade transactions, where around 28.5 billion pieces of paper are used globally, each year.

The bank’s digital strategy also includes a partnership with Satago to deliver a single platform invoice financing and invoice factoring solution.

Merisa Lee Gimpel, Managing Director of Solution Development for Working Capital and Lending Products at Lloyds Bank, adds: “We are also working on a series of pilots to test the interoperability of digital Bills of Lading across international borders.”

Antony Peyton
Antony Peyton
Antony Peyton is the Editor of eWeek UK. He has 18 years' journalism and writing experience. His career has taken him to China, Japan and the UK - covering tech, fintech and business. Follow on Twitter @TonyFintech.

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