HSBC Executes Blockchain-based Letter of Credit Transaction

The pilot transaction makes HSBC one of the first global banks to process a full end-to-end transaction using blockchain.

HSBC today said it has successfully completed its first blockchain-based cross-border Letter of Credit (LC) transaction dominated in Chinese yuan. The move is a further step in determining the viability of the technology in the global trade.

The pilot transaction, which was executed using the Voltron blockchain platform, involved the shipment of LCD parts and panels from Hong Kong-based MTC Electronic to its parent company, Shenzhen MTC.

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“We are hoping that we will have something by end of the year, maybe the first quarter of next year, where will we know from Voltron what it costs, at which point, a lot of banks who might be sitting on the sidelines will be able to make a decision,” said Ajay Sharma, HSBC’s regional head of trade for Asia-Pacific.

Although those types of trade transactions rely on credit letters for short-term finance, the existing process is largely paper-based and takes up to 10 days for the conventional document exchange. However, the exchange of the electronic documents using blockchain was completed in 24 hours as HSBC was able to digitize and simplify the end-to-end exchange of information between all parties on the Voltron platform.

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Other benefits, according to the lenders’ statement, also include the immediate and simultaneous transfer of assets, settling transactions in real-time, as well as reducing counterparty risks and the capital costs.

The test also makes HSBC one of the first asset global banks to process a full end-to-end transaction using blockchain technology. However, the move follows other banks in pursuing similar pilot projects.

Voltron is a blockchain-based open industry platform for digitizing trade finance documents on Corda, R3’s blockchain platform. HSBC is one of the founder members of Voltron, alongside Bangkok Bank, BNP Paribas, CTBC, Standard Chartered, ING, Natwest, and SEB, with delivery partners Bain, CryptoBLK, and R3, with a view to attracting more member banks and companies.

China previously declared war against cryptocurrencies, prohibiting initial coin offerings and clamping down on its promoters. Despite such reservations, the government supported the underlying blockchain technology to revolutionize economic sectors and even included the technology in its roadmap for the nation’s development by 2020.

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