Financial services group HSBC said on Monday it had for the first time utilised blockchain technology to complete a speedy commercial trade finance transaction that normally takes around a week using normal paper-based processing mediums.
The transaction demonstrates that blockchain as a solution to trade digitisation, is commercially and operationally viable.
Traditionally, the time required for exchanging documents in trade finances is five to 10 days.
The companies exchanged the information needed for the letter of credit in 24 hours, the banks said.
HSBC and Dutch bank ING said their trial of blockchain's application to trade financing has been a success, leading the way to faster, cheaper and more secure transactions.More news: Ebola outbreak: World Health Organization gets approval to use experimental vaccine in DRC
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It was an end-to-end transaction that was carried out on a shared digital application between the buyer, seller, and the banks involved.
The LC was issued by HSBC, with ING acting as the advising bank. "The need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous". The trial used R3's Corda blockchain platform to finance a shipment of soya from Argentina to Malaysia.
Blockchain technology uses a distributed ledger that is kept up by a network of computers to verify the transactions, rather than a centralized system.
According to the United Nations, digitizing all of the Asia-Pacific region's trade-related paperwork could slash the time it takes to export goods by up to 44%, cutting costs by up to 31% and boosting exports by as much as $257 billion a year. "The quick turnaround could mean unlocking liquidity for businesses", HSBC's head of growth and innovation was quoted saying in a statement.
Corda was developed by R3, a New York-based blockchain consortium whose members include more than 100 banks, regulators and trade associations. This consortium now holds more than 100 different banks, trade associations, and regulators.
According to HSBC, the transaction can be replicated.