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HSBC claims first commercially viable trade finance deal on blockchain

The London-based bank HSBC has made what it claims is the world’s first commercially viable blockchain-based trade finance deal.

In partnership with Dutch bank ING, HSBC used a blockchain trading system called Corda developed by the software consortium R3 to manage the credit letter for the shipment of soybeans from Argentina to Malaysia for US food group Cargill.

The transaction took place in one step on a single platform in 24 hours, rather than the days or weeks required for numerous third parties to mediate the transaction, as has been the case up to now.

The fact that the trade could be replicated if the same counterparties were involved made it an advance on previous trials using blockchain technology, according to Vivek Ramachandran, head of innovation and growth for commercial banking at HSBC.

“With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous,” he said. 

Describing the transaction as an “an inflection point for how trade is conducted,” Ramachandran said that for further advances to be made in the simplification of the trading process through blockchain more parties must now come on board including shipping companies, ports and banks.

“The next stage is actually encouraging as many participants as possible to sign up to the utility,” he said, comparing the adoption of common blockchain technologies by the industry to that of standardised shipping containers, something that took a long time to be accepted across the sector.

Blockchain-based transactional systems have the potential to eliminate many of the necessary checks and paperwork inherent in trade finance, but both buyer and seller need to be using the same system, or at least compatible ones. It is an area that is seeing a great deal of competition at the moment- not to mention hype – as developers race to create a system that becomes the accepted standard. Ramachandran said he believed this situation will continue to play out over the next five years.

Recently IBM and shipping company Maersk joined forces to build a platform that utilises blockchain technology as the basis of a secure communication channel between shippers, ocean carriers, freight forwarders and custom authorities.

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