HSBC Group – First Blockchain Trade Finance Transaction

     Last Monday, financial services group, HSBC, claimed it had successfully performed the world’s first “commercially viable” trade finance transaction using blockchain technology, exponentially speeding up a process that normally takes a week or more to be completed by traditional mediums.

This transaction was the first time blockchain technology has been implemented for a commercial trade finance settlement. The trade finance transaction involved U.S. food and agriculture firm, Cargill, and Dutch lender, ING. This operation consisted of a bulk shipment of soybeans from Argentina to Malaysia. The letter of credit was issued from an HSBC Netherlands based financier. The process of these kinds of transactions require letters of credit to be issued by one bank to another in order to guarantee that a payment will be received by a seller under a set of conditions. Traditionally, this process takes a week (or even more) to be completed, involving a large amount paper records and constant communications of the parties involved. According to ING, the exchange was performed in 24 hours, a great improvement compared to the time it normally takes to accomplish such transactions by the current paper-based system.

According to an HSBC spoken person in an interview, there have been proof-of-concept transactions performed using blockchain technology, however, HSBC’s was the first that could have commercial application.

According to Vivek Ramachandran, head of growth and innovation at HSBC,

“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.”

HSBC used Corda, a blockchain-platform developed by R3. For this transaction, R3 works with a consortium of banks to come up with a blockchain solution to optimize this kind of process and make banking operations more efficient. It is clear that blockchain has the potential to optimize sectors like trade finance, insurance and health care as they rely on long paper trails.

by Samuel Larreal