HSBC is shaking up a centuries-old industry using blockchain
- HSBC has made what it claims is the world's first commercial trade-finance transaction using blockchain.
- The exchange was for a shipment of soybeans transported from Argentina to Malaysia, made by US food giant Cargill. HSBC and ING facilitated the deal.
- The technology is expected to cut transaction times, reduce costs, paperwork and increase security.
- "This is an inflection point for how trade is conducted," Vivek Ramachandran, HSBC's global head of innovation and growth for commercial banking, said in a statement.
LONDON - HSBC said on Monday it has made what it claims is the world's first commercial trade-finance transaction using blockchain.
The exchange was for a shipment of soybeans transported last week from Argentina to Malaysia. HSBC handled the deal for US food and agricultural group Cargill, in partnership with Dutch ING Bank NV. Both used blockchain technology developed by the R3 consortium.
The technology allowed the transaction to be made on one central platform and minimised the time and paper trail needed to make the trade. HSBC hopes the transaction will be a milestone that could enable mass-adoption in the $9 trillion trade-finance market and shake up a centuries-old industry.
"This is an inflection point for how trade is conducted," Vivek Ramachandran, HSBC's global head of innovation and growth for commercial banking, said in a statement.
"With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous."
Blockchain is the digital technology which underpins cryptocurrencies like Bitcoin. Banks have long studied its application in mainstream financial markets, spending millions researching pilots and use cases. The Cargill exchange was done using Corda Blockchain, a platform developed by the R3 consortium which HSBC and ING are both a part of.
Earlier this year ING also touted a similar cross-border soybean deal that was completed using blockchain technology.
HSBC said the transaction announced on Monday can be replicated and shows the technology is ready to be adopted across the industry. It hopes the technology will make trade finance deals can be made simpler, quicker, more transparent and more secure.
HSBC said putting all of Asia Pacific's trade-related paperwork onto the blockchain like this could cut the time of exporting goods by up to 44% and cut costs by up to 31%.
A transaction of this kind would normally take between five and ten days for the full exchange of documents, HSBC said. The Cargill blockchain transaction was completed in 24 hours.
The bank added: "Blockchain can pull trade into the digital age."
"The next stage is actually encouraging as many participants as possible to sign up to the utility," Ramachandran said, stating that banks, shipping companies, ports and customs operations would have to adopt the technology before it could be used widely.
There are still significant hurdles for blockchain before it becomes an efficient and legally compliant technology, said Ramachandran. Each country has different laws, so policy makers would need to make changes to enable its use across borders.
But a closed system where transactions are only visible to registered buyers and sellers could be possible within five years, Ramachandran said
"It is only by working together that we will create a platform that all those involved in trade want to use, from banks, exporters and shippers to regulators and lawmakers."