HSBC Makes Major Trade Finance Transaction using Blockchain

HSBC has claimed to make its major breakthrough on Monday, as the company performed the world’s first commercially viable trade finance transaction using blockchain technology.

The bank issued a letter of credit for US food and agriculture firm Cargill. The letter was issued from HSBC to ING, a Dutch lender. The transaction involved a shipment of soybeans from Argentina, through Singapore, to Malaysia.

Both used blockchain technology developed by the R3 consortium. R3 called Corda works with a consortium of banks to come up with blockchain solutions to a variety of problems.

Blockchain technology, which underpins bitcoin, enables transactions to be recorded across a vast network of computers. Furthermore, the technology allowed the transaction to be made on one central platform, and it minimizes the traditional time and paper trial needed to complete the trade.

Vivek Ramachandran, HSBC’s head of growth and innovation, said, “Trade finance transactions have been made simpler, faster, more transparent and more secure. The need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous. The quick turnaround could mean unlocking liquidity for businesses.”

Letters of credit transactions are issued to guarantee that a payment will be received by a seller under a given set of conditions. Traditional transactions last between 5 to 10 days; however, the said transaction above took only less than 24 hours to be done.

The industry of trade finance is roughly worth $9 billion annually.

The Future for Blockchain

“The successful transaction was also welcomed by the other parties involved.  Blockchain is a key technology we are exploring and using with our own customers and, now, using for ourselves with the completion of this transfer on Corda,” said Rani Misra, regional treasurer, APAC, Cargill. 

HSBC said that the Cargill deal proves blockchain is now ready for commercial use, as the deal could also be quickly replicated to allow for fast future trades.

Meanwhile, banks have been pouring money into blockchain projects as it is thought that the technology will significantly disrupt the financial services.

Though lenders are not fond of the blockchain’s original use, to underpin cryptocurrency transactions, others see its practical use on technology for its ability on handling massive amounts of data within a transparent, well-established network.

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