Published: Tue, May 15, 2018
Finance | By Loren Pratt

World's First Blockchain-Based Trade Finance Transaction Performed by HSBC

World's First Blockchain-Based Trade Finance Transaction Performed by HSBC

The exchange was for a shipment of soybeans transported last week from Argentina to Malaysia.

While there have been other trade finance deals that use blockchain in conjunction with other technologies, the Cargill transaction marked the first use of a single, shared digital application rather than multiple systems, HSBC said.

The transaction demonstrates that blockchain as a solution to trade digitisation, is commercially and operationally viable.

"This is an inflection point for how trade is conducted", Vivek Ramachandran, HSBC's global head of innovation and growth for commercial banking, said in a statement. Blockchain supporters believe that this technology can be successfully implemented across a variety of different spheres like trade finance, health care and insurance, bringing significant benefits and positive changes.

The letter of credit involved was issued by HSBC, while ING served as the advising bank, and the process was slashed to 24 hours from the paper-based standard of 5-10 days.

Trade finance transactions are large payments, often worldwide, that traditionally require many participants, lots of paper and many couriers. He pointed out that blockchain technology eliminates the need for paper reconciliation because all parties are on one platform and updates are handled instantly.

HSBC Holdings announced that it had completed its first scalable blockchain-based trade finance transaction through which it has concluded that blockchain is ready for mass adoption in the trade finance market.

Referring to a study of the United Nations, HSBC said that using blockchain and transforming all trade-related paperworks into the electronic format can cut the time by up to 44%, and expense by up to 31%, in exporting goods. "The quick turnaround could mean unlocking liquidity for businesses".

The bank added: "Blockchain can pull trade into the digital age".

The LC was issued by HSBC, with ING acting as the advising bank.

"It is only by working together that we will create a platform that all those involved in trade want to use, from banks, exporters and shippers to regulators and lawmakers".

More banks all around the world seem to be showing interest in decentralized ledger technology which is the same technology that supports cryptocurrencies such as Bitcoin (BTC).

According to Ramachandran, HSBC has another client lined up for another similar transaction.

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