HSBC has completed the world’s first commercially viable trade-finance transaction using blockchain, opening the door to mass adoption of the technology in the $9tn market for trade finance.The UK-based bank said the blockchain trade, which processed a letter of credit for US food and agricultural group Cargill, had shown the platform was ready to be commercially adopted across the industry.
The introduction of blockchain, which underlies cryptocurrencies such as bitcoin, is expected to shake up the centuries-old trade-finance industry, reducing the numerous documents and several days of processing needed for a single transaction to a paperless task that can be completed in hours.
The distributed ledger technology behind blockchain has the potential to be used for encrypted and unhackable record-keeping across a range of industries, from property registration to medical records and insurance claims.“The next stage is actually encouraging as many participants as possible to sign up to the utility,” said Vivek Ramachandran, head of innovation and growth for commercial banking at HSBC, noting that banks, shipping companies, ports and customs operations would have to take up the same technology before it could gain widespread usage. “We don’t envisage the platform as anything other than a utility.”Why Switzerland attracts cryptocurrenicesIn trading hubs around the world, banks such as HSBC still operate trade-finance floors filled with stacks of paper documentation for trade. Blockchain transactions will greatly reduce these operations in the coming years, Mr Ramachandran said.
HSBC took in $2.52bn in trade-finance revenue last year, making it one of the world’s largest banks in the industry.The transaction for Cargill was for a shipment of soyabeans from Argentina to Malaysia last week. HSBC used the Corda blockchain platform, which was developed by technology consortium R3. Dutch bank ING, which has also adopted the technology, was a counterparty on the deal.Unlike previous test transactions, the one for Cargill could be replicated if the same counterparties were involved, Mr Ramachandran said, showing that the technology is ready for commercial use.
He likened the advent of blockchain trade finance to the usage of standardised shipping containers, which were slowly adopted by ships, ports, railways and trade companies over several decades to eventually become the primary mode for global shipping. In much the same respect, counterparties to trade finance — such as banks, ports and traders — must all adopt common platforms and standards for blockchain trade finance, something that Mr Ramachandran says will play out over the next five years.A number of banks and companies over the past year have experimented with platforms for fully digital processing of trade documents, and some have launched pilots for live trade transactions.But widespread adoption of the technology will still face challenges as companies and banks attempt to make their pilot projects fit in with the bustling world of global trade, said Gadi Ruschin, chief executive at Wave, an Israel-based start-up developing bill-of-lading products using blockchain. Many of the products currently under development around the would fail, he predicted.“The blockchain is only an enabling technology for different products and each product should be evaluated in many aspects before evaluating the chances for adoption — technology, regulations, cost of the service, security but the most important one is the product market fit,” Mr Ruschin said.
