HSBC recently completed the world’s first commercially viable trade finance transaction using blockchain.
The transaction was completed in partnership with Dutch bank ING and Cargill for a shipment of soybeans that was transported from Argentina to Malaysia.
Up until that point, banks, buyers and suppliers had been experimenting with blockchain, testing proofs of concepts and conducting internal pilots. However, HSBC’s transaction was an end-to-end trade between a buyer and a seller and their respective banking partners, completed on a single and shared digital application rather than multiple systems. What’s more, the blockchain platform used is already being supported by 12 banks, who are working with their partners to continue the development to bring the platform to market more broadly.
The use of blockchain technology in banking is expected to reduce fraud and drive efficiencies especially in Letters of Credit (LC) as it will shorten the lengthy process. LC’s are the most commonly used method for financing between importers and exporters, helping ensure more than $2 trillion worth of transactions but can take anywhere between 5-10 days to exchange documentation. HSBC’s transaction for Cargill, meanwhile, took two days to complete.
“The reason why letters of credit have persisted is because of two real challenges — the absence of digital infrastructure and the challenge of coordinating multiple parties,” said Vivek Ramachandran, global head of innovation & growth at HSBC.
“This platform helps us overcome the first and I think the technology and everyone focussed on it give us the impetus to go after the second now with hopefully much better results than we have seen in the past.”
Vivek Ramachandran will be speaking exclusively at the Blockchain for Business Summit next month in Sydney, Australia.