HSBC and ING on Monday announced they have carried out the first live trade-finance transaction on R3’s scalable blockchain platform called Corda. This transaction was for agrifood trading giant Cargill.
The blockchain transaction involved a bulk shipment of soybeans from Argentina, through Geneva’s trading arm of Cargill, to Malaysia, through Cargill’s Singapore subsidiary as the purchaser. A Letter of Credit was issued using Corda by HSBC to ING. The two banks were acting on behalf of Cargill entities.
The Letter of Credit transaction was an end-to-end trade between a buyer and a seller and their respective banking partners, completed on a single shared application rather than multiple systems.
The transaction demonstrates that blockchain as a solution to trade digitization, is commercially and operationally viable. Conventional exchanges for paper-based documentation related to letters of credit usually take between 5-10 days. This exchange was done in 24 hours.
At present buyers and sellers use paper-based Letters of Credit to underpin transactions. Physical documents are sent to each party in the transaction by post, courier or fax. These documents set out what goods are being provided and how much will be paid for them.
A Letter of Credit is effectively a promise that the buyer’s bank will pay for the goods, once they are received, if the buyer is unable to. While these paper documents provide certainty, the time and cost involved in processing them are deterrents for many would be exporters and importers.
“What this means for businesses is that trade finance transactions have been made simpler, faster, more transparent and more secure,” said Vivek Ramachandran, HSBC’s head of growth and innovation. “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.”