HSBC and ING Bank have executed the first scalable live trade finance transaction using blockchain for Cargill, an international food and agriculture conglomerate.

Last week, a shipment of soybeans was transported from Argentina to Malaysia, via Cargill's Geneva and Singapore subsidiaries. The deal was financed using a Letter of Credit completed digitally on R3's scalable Corda blockchain platform, marking a tipping point in the way goods are traded.

The transaction demonstrates that blockchain is a commercially and operationally viable solution for trade digitization. Up until this point, banks, buyers and suppliers had been experimenting with blockchain, testing proofs of concepts and conducting internal pilots. However, this Letter of Credit transaction was an end-to-end trade between a buyer and a seller and respective banking partners, completed on a single and shared digital application rather than multiple systems. The blockchain platform used is already being supported by 12 banks, working with R3 and partners to continue the development to bring the platform to market more broadly.

According to Vivek Ramachandran, global head of innovation and growth, Commercial Banking at HSBC: "This is an inflection point for how trade is conducted. At the moment, buyers and suppliers use a Letter of Credit, typically concluded by physically transferring paper documents, to underpin transactions. With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous. What this means for businesses is that trade finance transactions have been made simpler, faster, more transparent and more secure."

This technology is suited for trade because it helps to streamline a previously paper-intensive process which usually takes between 5-10 days to exchange documentations. This exchange was done in 24 hours.

"The success of this live transaction builds a firm foundation for the future of trade finance. The improved operational efficiencies, greater security with real-time tracking of goods and documents, and automatic reconciliation of payments will help boost both intra-regional and international trade flows," said Ajay Sharma, regional head of global trade and receivables finance for Asia-Pacific at HSBC.

Ivar Wiersma, managing director, Innovation Wholesale Banking, ING, said: "It's exciting to see this transaction has been completed successfully with clear client benefits in speed and ease in execution. On top of that, it shows the power of collaboration. Collaboration with other ecosystems' stakeholders like regulators, ports, customs and logistics providers such as large shipping carriers. And in particular, collaboration with other banks, even our peers."

According to the United Nations, digitizing all of the Asia-Pacific region's trade-related paperwork could cut the time it takes to export goods by up to 44% and in doing so, cut costs by up to 31%, and boost exports by as much as US$257 billion a year.

Photo: HSBC