Groundbreaking HSBC blockchain transaction set to revolutionise trade
View(s):HSBC and ING Bank have successfully executed, what is claimed to be the “first scalable live trade finance transaction using blockchain” for Cargill, an international food and agriculture conglomerate.
Last week, a shipment of soybeans was transported from Argentina to Malaysia, via Cargill’s Geneva and Singapore subsidiaries. The deal was financed using a Letter of Credit, which was completed digitally on R3’s scalable Corda blockchain platform, marking a tipping point in the way goods are bought and sold, HSBC said in a media release.
The transaction shows that blockchain is a commercially and operationally viable solution for trade digitisation. Up until this point, banks, buyers and suppliers had been experimenting with blockchain, testing proofs of concepts and conducting internal pilots. However, this Letter of Credit 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 R3 and their partners to continue the development to bring the platform to market more broadly, it said.
According to Vivek Ramachandran, Global Head of Innovation and Growth, Commercial Banking at HSBC: “With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous. What this means for businesses is that trade finance transactions have been made simpler, faster, more transparent and more secure.”
This technology is ideally suited for trade because it helps to streamline a previously paper-intensive process which usually takes between 5-10 days to exchange documentations. This exchange was done in 24 hours.
“The success of this live transaction builds a firm foundation for the future of trade finance. The improved operational efficiencies, greater security with real-time tracking of goods and documents, and automatic reconciliation of payments will help boost both intra-regional and international trade flows,” said Ajay Sharma, Regional Head of Global Trade and Receivables Finance for Asia-Pacific at HSBC.
Ivar Wiersma, Managing Director, Innovation Wholesale Banking, ING, said: “It’s exciting to see this transaction has been completed successfully with clear client benefits in speed and ease in execution. On top of that, it shows the power of collaboration.”
The release said Enterprise blockchain records data digitally in much the same way as bookkeepers used to write in old-fashioned legers. However, the information is recorded on a shared ledger, with each party holding a copy of said ledger that updates the appropriate information required by the participant instantaneously. Each party can only see the information that is relevant to them. This kind of technology is perfect for trade because it maintains an unchangeable record of the transaction (including a description of the goods themselves, the cost, and any legal requirement) on one digital ledger. At the appropriate time in each transaction, the information required by participants can be shared with them for approval, HSBC said.