Soybean shipment to Malaysia is 1st blockchain-based live trade finance transaction for HSBC and ING
HSBC Singapore, Cargill and ING have successfully executed the first live trade finance transaction on R3’s scalable blockchain platform called Corda.
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 digitisation, 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
“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.”
The blockchain transaction offers improved operational efficiencies, greater security with real-time tracking of goods and documents, and automatic reconciliation of payments.
The faster documentation turnaround for each shipment could potentially lead to increased flexibility in liquidity management for businesses. This is a significant development for any organisation involved in buying and selling goods internationally.
The success of this live transaction builds a firm foundation for the future of trade finance, especially for Singapore. “Singapore is both a global and regional trade hub. Our customers are thought leaders in using technology to optimise trade and this represents a key step towards the digitisation of trade,” said Iain Morrison Head of Global Trade and Receivable Finance, HSBC Singapore.
According to the the United Nations, digitizing all of the Asia-Pacific region’s trade-related paperwork could slash the time it takes to export goods by up to 44% and in doing so, cutcosts by up to 31%, and boost exports by as much as $257 billion a year.
Enterprise blockchain records data digitally in much the same way as bookkeepers used to write in old-fashioned ledgers. However, the information is recorded on a shared ledger, with each party holding a copy of said ledger that updates the appropriate information required by the participant instanteneously. Each party can only see the information that is relevant to them. This kind of technology is perfect for trade because it maintains an unchangeable record of the transaction (including a description of the goods themselves, the cost, and any legal requirement) on one digital ledger. At the appropriate time in each transaction, the information required by participants can be shared with them for approval.
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].
Typically, processing a Letter of Credit accompanying the movement of goods from one company to another takes between five and ten days. This transaction took two days to complete.