HSBC India and ING Bank Brussels have executed a blockchain enabled letter of credit transaction,a live trade finance transaction jointly with Reliance Industries and Tricon Energy.
Letters of credit are issued by one bank to another to guarantee that a payment will be received by a seller under a set of conditions. Traditionally this process would take a large amount of time, numerous paper records, and a lot of back and forth between the various parties involved.
WHAT IS BLOCKCHAIN
Blockchain enables transactions to be recorded across a vast network of computers, creating an open ledger that can be easily verified and traced to the origin. Banks have taken the principles behind bitcoin’s blockchain – such as the idea of decentralized ledger – and tried to apply it to processes that they are carrying out.
For this transaction, HSBC used a platform developed by blockchain start-up R3 called Corda.
The companies said that this is an industry first as the Blockchain platform integrated with electronic Bill of Lading (eBL) platform to issue and manage an electronic Bill of Lading.
“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,” a release from HSBC said.
The use of blockchain offers significant potential to reduce the timelines involved in exchange of export documentation from the extant of 7 to 10 days to less than a day.
This transaction validates the commercial and operational viability of blockchain as an alternative to conventional exchanges for paper-based documentation, making it the the key change to unlocking higher level of liquidity in businesses. It also enables greater transparency and enhanced security in addition to making it simpler and faster.