World’s First Trade Finance Transaction Conducted by HSBC using Blockchain
May 15, 2018 1:57 pm
Blockchain Technology used by HSBC to Perform World’s First Trade Finance Transaction
The bank circulated a letter of credit for U.S. food and agriculture firm Cargill. The trade finance transaction included a bulk shipment of soybeans from Argentina to Malaysia. The letter of credit was issued from HSBC to Dutch lender ING.
Letters of credit are originated from one bank to another to ensure that a seller will receive a payment under a set of provisions. Traditionally this process would take a considerable amount of time, various paper records, and a lot of back and forth between the several parties involved. Blockchain technology guarantees to change that.
Blockchain, the technology that justifies bitcoin, allows transactions to be maintained across a vast network of computers. However, in bitcoin’s case, it records all of the transactions that happen on the network, creating a public ledger. Banks have taken the principles behind bitcoin’s blockchain – such as the idea of the decentralized ledger – and attempted to apply it to processes that they are carrying out.
HSBC used a platform developed by blockchain start-up R3 called Corda for this transaction. R3 works with an association of banks to come up with blockchain solutions to several problems.
The head of growth and innovation at HSBC, Vivek Ramachandran, said in a statement:
“The need for paper reconciliation is removed because all parties are linked to the platform and updates are instantaneous. The fast turnaround could mean opening liquidity for businesses.”
According to HSBC and ING, the exchange was performed in 24 hours, compared to the five-to-10 days it usually takes to complete such exchanges over a paper-based system.
Supporters of the blockchain technology claim that it can upend various industries. Sectors like trade finance, health care, and insurance are thought of as good objectives for the use the technology as they depend on long paper trails.
While there have been proof-of-concept activities performed using blockchain technology, HSBC’s was the first that could have practical applications, a spokesman for the company told CNBC.
Banks have been spending money on blockchain projects as it is regarded that the technology will notably upset the financial assistance.
While bankers do not like the original use case of blockchain — to underpin cryptocurrency transactions — many see the functional use for the technology because of its ability to handle large amounts of data within a simple, stable network.
In the previous month, Santander coupled up with blockchain firm Ripple to create a foreign exchange service that enables same-day international money transfers.