Global banking giant HSBC has performed the world’s first trade transaction using blockchain technology.
The UK-based bank and Dutch bank ING together processed a ‘letter of credit’ for US food and agricultural group Cargill, financing a shipment of soya beans from Argentina to Malaysia.
Letters of credit are typically sent on behalf of businesses whenever a large B2B transaction begins.
“Once, banks were the hub, working with you as suppliers, transporters and buyers,” HSBC said in a video posted on Twitter.
“Now, we are working to decentralise the process using blockchain technology.”
Blockchain technology works as a public ledger: once information is entered it can be viewed by anyone and cannot be altered.
“With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous,” said Vivek Ramachandran, global head of innovation and growth at HSBC’s commercial banking unit.
Blockchain transactions are also free to process, which makes them an attractive alternative for businesses which regularly need to send or process the letters.
“The next stage is actually encouraging as many participants as possible to sign up to the utility,” said Ramachandran.
“At the moment, buyers and suppliers use a letter of credit, typically concluded by physically transferring paper documents, to underpin transactions.
“What this means for businesses is that trade finance transactions have been made simpler, faster, more transparent and more secure.”
HSBC first announced its intention to use blockchain in 2016 after successfully creating a prototype letter of credit with Bank of America Merrill Lynch and the Infocomm Development Authority of Singapore.