HSBC and ING complete world’s first trade finance transaction using blockchain

Two of the world’s leading banks have successfully completed a trade finance transaction powered by blockchain technology, showcasing the feasibility of the new-age technology’s use in the paper- and document-intensive sector. London-based HSBC Holdings Plc and Dutch bank ING completed the transaction for food and agricultural group Cargill, according to a report by Reuters, reducing a process that normally takes 5-10 working days to 24 hours. In a statement, HSBC said that the transaction was a major step in demonstrating the capability to boost efficiency and reduce errors in the multi-trillion-dollar international trade funding industry.

According to reports, US-based Cargill was the primary exporter and importer on the deal which was for a shipment of soybeans sold by Cargill Geneva on behalf of Cargill Argentina, to Cargill Singapore on behalf of Cargill Malaysia. The transaction was accomplished using a letter of credit based on the Corda blockchain platform, owned by US company R3. R3 is an enterprise software firm that works with more than 200 banks, financial institutions, regulators, trade associations, professional services firms, and technology companies in nine countries around the world.

Speaking about the importance of the transaction, Vivek Ramachandran, Global Head of Innovation and Growth at HSBC’s commercial banking unit, told Reuters, “At the moment, buyers and suppliers use a letter of credit, typically concluded by physically transferring paper documents, to underpin transactions…What this [the Corda transaction] means for businesses is that trade finance transactions have been made simpler, faster, more transparent, and more secure.” He added, “The next stage is actually encouraging as many participants as possible to sign up to the utility.” Noting that banks, shipping companies, ports, and customs operations would have to adopt the technology before it sees widespread usage, Vivek commented that HSBC doesn’t see the platform as developing as anything beyond a utility.

Nevertheless, the potential posed by the successful completion of this transaction is too big to ignore. According to Reuters, letters of credit are among the most widely used ways of reducing risk between importers and exporters. They help guarantee more than $2 trillion worth of transactions, but the process creates a long paper trail and takes between five and 10 days to exchange documentation. Using the distributed digital ledger system provided by blockchain allows banks to not only store the information in unhackable digital records but even to reduce the time taken to conduct the total transaction to hours instead of days.

In its statement, HSBC cited a United Nations study that says that putting all of the Asia Pacific trade-related paperwork into electronic form could slash the time it takes to export goods by up to 44 percent and cut costs by up to 31 percent.

Clearly, this could herald major improvement and change in the centuries-old trade finance industry, that has so far been burdened with lengthy transaction times and extensive paperwork. Ivar Wiersman, ING’s Managing Director for Innovation in wholesale banking, told GTR, “It’s exciting to see this transaction has been completed successfully with clear client benefits in speed and ease in execution.” How soon will we see blockchain revolutionising trade finance and other related sectors? Let’s wait and watch.