HSBC deal shows blockchain viable for trade finance

The use of blockchain by banks like HSBC will reduce the risk of fraud in banking. Kin Cheung  AP

The use of blockchain by banks like HSBC will reduce the risk of fraud in banking. Kin Cheung AP

Banking and financial services organization HSBC and Dutch bank ING have conducted their first live trade finance transaction using the blockchain technology. It involved a shipment of soybeans from Argentina to Malaysia. The company believes that its success in performing the transaction is a positive sign that blockchain can possibly be used for financing trade.

An announcement made by Vivek Ramachandran, Global Head of Trade Products at HSBC, recently predicted that blockchain technology could operate on a "closed network" basis - with transactions only visible to registered participants - within three to five years. Unlike previous trade finance deals that used blockchain in the past, this was the first time a single shared digital application was employed as opposed to multiple systems. While the letter of credit was exchanged over the blockchain, while bill of lading and other transaction elements were not, the report adds.

The successful blockchain-based trade deal marks a key step forward for HSBC which has been showing a lot of interest in decentralized ledger technology as well as cryptocurrencies.

While the benefits of blockchain technology have been heralded by banks and other financial institutions for some time, HSBC's recent transaction offers us a real glimpse of what the technology is capable of.

According to professionals' estimation, putting all trade-related paper work of Asia Pacific onto the blockchain could help to reduce the time need for goods export by up to 44% and to cut costs by up to 31%. "The need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous". Corda was developed by the New York-based blockchain consortium R3. "Simply put, we took a highly manual, complex transaction and made it more secure and efficient".

The announcement is excellent news not only for the bank but also for the companies involved in worldwide trade finance.

HSBC said the transaction announced on Monday can be replicated and shows the technology is ready to be adopted across the industry.

Corda is supported by 12 banks, and it seems an effective backup to expand the technology broadly in the global market.

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