HSBC is among one of the biggest names in the world when it comes to banking and finance. The Hong-Kong based firm said earlier today that it has now become the first to successfully complete a trade-finance deal using a single blockchain system! The transaction took place between HSBC and ING, which was made for Cargill - a food and agriculture group.
This is a significant achievement for HSBC. While trade-finance systems have used blockchain systems in the past too, it has been a process where multiple blockchains had to be deployed. However, HSBC managed to pull this off with a single blockchain system.
Blockchain Tech Simplifying Trade Finance Deals
For those who may not understand the significance of HSBC’s feat today, here’s the problem: Letters of Credit, commonly known as LoC are a common way of financing between importers and exporters. However, the process tends to be quite tedious when you look at the paperwork that is involved, as well as time-consuming as it often takes up to a week to exchange documents. The fear of a fraudulent LoC or one that can be tampered with is also everpresent. These are some of the challenges that the blockchain technology can resolve.
Making use of a blockchain network for trade-finance deals ensures that there is no scope for fraud in the Letters of Credit, as well as the number of transactions and the steps involved in the process, are also reduced - making it faster, simpler and more efficient. Trade financing is a $9 Trillion market - and with this deal being a success, it opens doors for more innovations to follow.
Blockchain technology has found its use across multiple sectors and industries, with banking being one of the biggest such sectors. With HSBC’s trade-finance deal being a success, it won’t be long before other banks jump into the blockchain bandwagon and start making use of the technology for these kinds of deals.
In a statement to Reuters, Vivek Ramachandran, global head of innovation and growth at HSBC’s commercial banking unit said that the company is already working towards another similar deal with another client. He further added:
“The reason why letters of credit have persisted is that of two real challenges — the absence of digital infrastructure and the challenge of coordinating multiple parties. This platform helps us overcome the first and I think the technology and everyone focussed on it gives us the impetus to go after the second now with hopefully much better results than we have seen in the past.”
Banks on the Blockchain Bandwagon
A number of banks have been making use of blockchain-based systems over the past few months. Banks are investing heavily in the development of this technology which will help them innovate their offerings for their clients. Banks have been making use of blockchain technology for various purposes.
The Bank of America is making use of blockchain systems to store data while India’s ICICI bank has been using it for certain transactions. Other finance and banking giants have finally begun to accept the reality of the cryptocurrency economy and names such as Goldman Sachs have begun to develop Bitcoin Trading Desks! It is an interesting time for blockchain and cryptocurrency enthusiasts.