“(The transaction) allowed a digital transfer of the title of goods from the seller to the buyer in the underlying trade. It further enabled the underlying trade to be fully digitised. The Letter of Credit (LC) was issued by ING Bank for Tricon Energy USA (importer) with HSBC India as the advising and negotiating bank for Reliance Industries, India (exporter),” HSBC said in a press release.
HSBC said the transaction has validated the commercial and operational viability of blockchain as an alternative to conventional exchanges for paper-based documentation. At present buyers and sellers use paper-based letters of credit (LCs) to complete transactions, which have to be sent to each party by post, courier or fax increasing costs and chances of delay.
Eight banks namely, HSBC, ING, Bangkok Bank, BNP Paribas, CTBC Holding, NatWest, SEB and Standard Chartered together with US-based enterprise blockchain software firm R3 are working on an open source-based system with plans to expand the network and drive adoption across the industry.
“The use of blockchain has a transformative impact on trade finance transactions and enables greater transparency and enhanced security in addition to making it simpler and faster. The overall efficiency it brings to trade finance ensures cost effectiveness, quicker turnaround and potentially unlocks liquidity for businesses,” said Hitendra Dave, head global banking and markets at HSBC.
Srikanth Venkatachari, joint CFO at Reliance Industries said the use of blockchain offers potential to reduce the timelines involved in exchange of export documentation from the extant 7 to 10 days to less than a day.
“When adopted at scale, it helps in significant optimisation of working capital,” Venkatachari said.