As per a study conducted by the United Nations, adopting blockchain technology could potentially boost the turnover of importers and exporters by 44% while slashing their cost by up to 31%.
On Monday, in a significant development, HSBC Holdings Plc disclosed it has successfully completed the world’s first trade finance transaction using blockchain technology.
The development is a significant milestone in boosting the efficiency and reducing the scope for errors in the multi-trillion-dollar funding of international trade.
In a statement, the British lender stated, Dutch bank ING and HSBC Holdings Plc successfully completed the transaction for Cargill, a food and agricultural conglomerate.
The use of blockchain technology by the banking industry is expected to mitigate the risks of fraud in letters of credit as well as slash the number of steps required for transactions.
Letters of credit are widely used by importers and exporters as a way to reduce their risk exposures and have helped guarantee transactions worth more than $2 trillion. Issues surrounding letters of credit is that it is prone to exploitations, as has been the case in India’s Punjab National Bank Scam, the process creates a long paper trail and an exchange of a single letter of credit between two parties typically takes 5 to 10 days.
“At the moment, buyers and suppliers use a letter of credit, typically concluded by physically transferring paper documents, to underpin transactions,” said Vivek Ramachandran, global head of innovation and growth at HSBC’s commercial banking unit. “What this means for businesses is that trade finance transactions have been made simpler, faster, more transparent and more secure.”
HSBC has reported citing a study by the United Nations, that if Asia Pacific’s trade which currently is a mountain of paperwork, could be translated into an electronic format, companies could see cost cuts jump by up to 31% and a rise in exports by 44%.