HSBC Completes First Blockchain Trade Transaction

HSBC issued a letter of credit for agricultural conglomerate Cargill.

by Marin Marinov
14 May • 3 min
In Tech

HSBC said on Monday it has completed the world’s first blockchain based trade finance transaction, which involved Dutch lender ING and US agricultural firm Cargill.

Last week HSBC issued to ING a letter of credit for Cargill's transaction concerning a bulk shipment of soybeans from Argentina to Malaysia.

“What this means for businesses is that trade finance transactions have been made simpler, faster, more transparent and more secure,” Vivek Ramachandran, HSBC’s head of growth and innovation said. “The need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous. The quick turnaround could mean unlocking liquidity for businesses,” Ramachandran added in a press-release.

The UK bank used the blockchain of crypto start-up R3 named Corda. R3 is owned by David Rutter, who started the project in 2015 with the aim to develop cryptocurrency technology for the banking sector.

“Corda enables the development of applications like this one that bring all parties together on a single, shared infrastructure while ensuring the highest levels of privacy and security,” Rutter said in a statement after the HSBC-ING transaction.

Blockchain in banking sector

Blockchain, the technology behind major cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), is penetrating sectors outside virtual coins including banking, healthcare, insurance and online gaming. Developed as a Distributed Ledger Technology (DLT), it tracks every transaction and does not allow any changes thus enabling high security. Blockchain also significantly lowers the cost of banking operations by using automatically generated contracts and eliminating the role of third parties like bank officers.

“It’s exciting to see this transaction has been completed successfully with clear client benefits in speed and ease in execution,” Ivar Wiersma, Managing Director, Innovation Wholesale Banking at ING, said on Monday after Cargill transaction. “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,” Wiersma added.

Other blockchain-based banking transactions

R3 Corda unites a dozen of global companies, including financial institutions like Barclays and Deutsche Boerse or Korean tech giant LG. David Rutter’s consortium has several competitors including IBM, Lunix’s Hyperledger and Ripple.

Recently, trade finance platform Batavia, backed by Swiss commercial bank UBS and US technological company IBM, has claimed world’s first live cross-border trade transactions using blockchain while Spanish bank Santander has launched global payment application on the Ripple blockchain.

In a report published in April, credit rating agency Moody's stated that cryptocurrency technology has the potential to meaningfully lower the costs and time involved in cross-border banking transactions.

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