Published: Tue, May 15, 2018
Money | By Armando Alvarado

HSBC blockchain trial proves trade finance utility model

HSBC blockchain trial proves trade finance utility model

According to a CNBC report, the US food and agriculture firm Cargill made use of the trade finance transaction, which was essentially a letter of credit, to cover the shipment of bulk soybeans to Malaysia from Argentina. However, HSBC Holdings was able to work in conjunction with ING Bank NV to handle a letter of credit for Cargill Inc. which depended on the blockchain technology (Corda) that was created by the R3 consortium. The incentive? HSBC sees blockchain as a solution to help boost efficiency in the multi-trillion-dollar funding of global trade.

The transaction was executed within a record time of 24 hours, compared to the standard period of five to 10 days.

The NYSE- and LSE-listed banking and financial services organization has issued a letter of credit to the Dutch lender ING Groep NV (ADR) (ING) for the US food and agriculture firm Cargill.

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. Speaking further, he said that "With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous".

According to HSBC, it was the first scalable live trade finance transaction using blockchain.

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Despite their general hostility towards cryptocurrency industry, a growing number of banks have started embracing its underlying technology-the blockchain.

Banks have invested millions in developing blockchain applications in a bid to cut costs and simplify back office processes, such as the settlement of securities trades.

The LC was issued by HSBC, with ING acting as the advising bank.

Ramachandran said that this can enable businesses that trade finance transactions have been made simpler, faster, more transparent and more secure.

Ramachandran said that HSBC already has its next client lined up the next transaction. This consortium now holds more than 100 different banks, trade associations, and regulators. Corda is supported by 12 banks and this will hopefully allow it to bring the technology to market quickly and on a global scale.

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