Banks worldwide have become increasingly interested in blockchain technology and now HSBC has announced that it has completed the world's first trade finance transaction using a single blockchain platform.
The UK-based lender says it completed a transaction involving a shipment of soybeans from the food and agricultural company Cargill. 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.
HSBC also revealed that the transaction was completed on a platform called Corda, developed by the New York-based blockchain consortium R3. Corda is supported by over 100 institutions worldwide, and this will hopefully allow it to bring the technology to market quickly and on a global scale.
The banking industry believes that blockchain technology can help reduce the risk of fraud in letters of credit (LoC) and other transactions. Importers and exporters use LoCs to finance their transactions but the process takes between five and 10 days and creates a lengthy paper trail. Blockchain technology could greatly improve the speed of these transactions while eliminating a great deal of the paperwork involved in an LoC.
Global head of innovation and growth at HSBC's commercial banking unit, Vivek Ramachandran explained to Reuters how the platform could help the industry move beyond LoCs, saying:
“The reason why letters of credit have persisted is because of two real challenges — the absence of digital infrastructure and the challenge of coordinating multiple parties. This platform helps us overcome the first and I think the technology and everyone focussed on it gives us the impetus to go after the second now with hopefully much better results than we have seen in the past.”
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.
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