HSBC and ING in blockchain-backed trade finance breakthrough
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 Corda blockchain platform.
Vivek Ramachandran, global head of innovation and growth, commercial banking at HSBC: “This is an inflection point for how trade is conducted. At the moment, buyers and suppliers use a letter of credit, typically concluded by physically transferring paper documents, to underpin transactions. 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.”
The duo seems excited about this development, as they say the transaction demonstrates that blockchain is a commercially and operationally viable solution for trade digitisation.
According to the pair, 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.
R3’s platform is currently supported by 12 banks, who are working with R3 and their partners to continue the development to bring the platform to market more broadly.
HSBC says this technology is ideally suited for trade because it helps to streamline a previously paper-intensive process which usually takes between five to ten days to exchange documentations. This exchange was done in 24 hours.
HSBC also cites the United Nations, which states that digitising all of the Asia-Pacific region’s trade-related paperwork could slash the time it takes to export goods by up to 44% and in doing so, cut costs by up to 31%, and boost exports by as much as $257 billion a year.