Letter of Credit (LC)


A letter of credit (LC) is a bank-issued document that assures a seller of payment from a buyer under specific conditions, serving as a secure payment method for international trade, especially when trust is limited. LC ensures payment to the seller only after the goods meet agreed-upon conditions, reducing the risk of fraud and nonpayment, offering security to both parties in the transaction.


The issuing bank, that is the bank that issues the letter of credit at the request of the buyer, usually the importer or purchaser of goods or services.


The beneficiary/seller (the party entitled to receive payment under the LC, usually the exporter or supplier of goods or services).

Legal framework

LCs are subject to the ICC Uniform Customs & Practice for Documentary Credits (UCP 600). The legal requirements for using a letter of credit can vary depending on the jurisdiction and the specific terms and conditions of the letter of credit.


Cross-border Letters of Credit (LCs) are mainly issued using the Swift network, and in 2022, around 3.2 million LCs were issued.

Key standards

The ICC Uniform Customs and Practice for Documentary Credits (UCP 600) establishes the global standards for the utilisation of letters of credit in international trade. Additionally, the Swift network, particularly its Category 7—Documentary Credits standards, serves as the primary technical framework for handling Letters of Credit, making Swift the central infrastructure for exchanging LCs and related messages. Typically, MT700 message is sent by the issuing bank to the advising bank to indicate the terms and conditions of a documentary credit which has been originated by the sender (issuing bank).

Major differences between standards

The main issue is that while the SWIFT standard aligns with UCP 600 for issuing Letters of Credit (LCs), the document checking stage remains heavily reliant on paper, making LCs appear cumbersome and paper-intensive. This manual handling of documents during the crucial checking process often leads to processing delays, discrepancies, and fraud concerns.

Furthermore, the absence of a consistent global standard for party identification in LC transactions creates trust and security challenges. Names and addresses, traditionally used for identification, do not align with the requirements of digital ecosystems, where precise identification is crucial. Establishing a universal identifier could simplify party validation, enhance anti-fraud efforts, and enable advanced analytics for combating financial crime.


Various platforms facilitate the exchange of Letters of Credit (LCs):

Bank to bank:

  1. Swift: Swift serves as a widely used platform for LC exchange among banks globally, covering over 200 countries and territories, with more than 11,000 users. It offers a secure and standardised platform for MT700 message exchange related to letters of credit.

Corporate to bank:

  1. Bank proprietary channels: These online banking channels enable corporate customers to engage digitally with their banks. They support functions like LC application submission from corporates to banks and LC advising from banks to corporates.
  2. Multi-bank platforms: This category includes platform providers like Bolero, ELCY, Komgo, and the Swift for Corporates standard developed by Swift. These platforms facilitate LC-related interactions involving multiple banks and corporate users.
  3. APIs: While there are no industry-wide API standards for LCs, some banks, corporates, and third parties have adopted customised API frameworks through mutual agreements. These bespoke implementations enable communication, for example, in LC advising, using agreed-upon APIs.


Increasing the digital adoption of LC would require a combination of:

  1. Standardisation: The adoption of common standards for the digital exchange of letters of credit and data (e.g. API) could help to streamline the process and reduce the risk of errors and delays. These standards could include the use of common data formats, authentication protocols, and other technical specifications. In particular a standard identifier for parties is needed.
  2. Regulatory changes: Regulatory changes, such as the recognition of electronic signatures and the acceptance of digital documents, could help to facilitate the digital adoption of LC.