HSBC Completes First Trade-Finance Deal Using Blockchain, Opening $9 Trillion Market For Mass Adoption

Just a few hours after German online bank Bitbond announced it now allows users to transfer loan anywhere in the world using bitcoin and other cryptos , a move which we said would result in a rapid adoption of blockchain technologies within the bank-disintermediation space, the FT reported that in a somewhat parallel transaction, UK-based banking giant HSBC has completed the world’s first commercially viable trade-finance transaction using blockchain, in the process opening the door to mass adoption of the technology in the $9tn market for trade finance, a process which ironically culminates with traditional banks such as HSBC becoming disintermediated from the fund flows process, i.e., obsolete.

HSBC said the blockchain trade, which processed a letter of credit for US food and agricultural group Cargill, had shown the platform was ready to be commercially adopted across the industry.

In many ways the news will be welcome, especially when it comes to trade finance: traditionally one of the most convoluted and burdensome pillars of modern finance, one which has been deeply in need of disruption.

As a result, the FT notes that the introduction of blockchain "is expected to shake up the centuries-old trade-finance industry, reducing the numerous documents and several days of processing needed for a single transaction to a paperless task that can be completed in hours."

And, as Vivek Ramachandran, head of innovation and growth for commercial banking at HSBC, said, "the next stage is actually encouraging as many participants as possible to sign up to the utility" adding that banks, shipping companies, ports and customs operations would have to take up the same technology before it could gain widespread usage. "We don’t envisage the platform as anything other than a utility."

Think of blockchain is to trade finance as DTCC was to old-school stock certificates (incidentally, blockchain is set to revolutionize DTC as well).

In trading hubs around the world, banks such as HSBC still operate trade-finance floors filled with stacks of paper documentation for trade. Blockchain transactions will greatly reduce these operations in the coming years, Mr Ramachandran said. HSBC took in $2.52bn in trade-finance revenue last year, making it one of the world’s largest banks in the industry.

In light of these numbers, it is understandable why HSBC wants to streamline its process even more, generating a far higher profit margin.

Some more details on the historic blockchain-mediated letter of credit:

The transaction for Cargill was for a shipment of soyabeans from Argentina to Malaysia last week. HSBC used the Corda blockchain platform, which was developed by technology consortium R3. Dutch bank ING, which has also adopted the technology, was a counterparty on the deal.

Unlike previous test transactions, the one for Cargill could be replicated if the same counterparties were involved, Ramachandran said, showing that the technology is ready for commercial use.

To be sure, HSBC was delighted with the outcome, and Ramachandran likened the advent of blockchain trade finance to the usage of standardized shipping containers, which were slowly but surely adopted by ships, ports, railways and trade companies over several decades to eventually become the primary mode for global shipping.

And now the race is on for the next standardization protocal, which unless something far better emerges in the coming months, will be blockchain:

In much the same respect, counterparties to trade finance — such as banks, ports and traders — must all adopt common platforms and standards for blockchain trade finance, something that Mr Ramachandran says will play out over the next five years.

To be sure, there will be bottlenecks, and widespread adoption of the technology will still face challenges as companies and banks attempt to make their pilot projects fit in with the bustling world of global trade, said Gadi Ruschin, chief executive at Wave, an Israel-based start-up developing bill-of-lading products using blockchain. Many of the products currently under development around the would fail, he predicted.

"The blockchain is only an enabling technology for different products and each product should be evaluated in many aspects before evaluating the chances for adoption — technology, regulations, cost of the service, security but the most important one is the product market fit," Ruschin said.

As discussed most recently three months ago, trade finance - its massive $9 trillion industry size notwithstanding - is just one of numerous fields ripe for disruptions and improvement; ultimately the broad reach of blockchain will impact no less than $100 trillion worth of goods and services; in this context, the fact that the market cap of the entire crypto universe (at just over $400 billion at this moment) is less than half the market cap of Apple, may be one of the biggest arbitrage opportunities in history.

Comments

Bitchface-KILLAH karenm Sun, 05/13/2018 - 23:00 Permalink

They aren't fool... they want their own private blockchains. 

HSBC and others can piggy-back on Bitcoin, Dash, whatever to save transfer money in the mean time.  Eventually, people will just ask "Why are we using dollars?  And why are we using HSBC?  We can do all this ourselves, for less."

Also, crypto exists in spite of the alphabet soup agencies and the banks, not because of.  It is great to see them flirting with crypto and blockchain like a rat smelling poisoned peanut butter.  As a crypto developer at a lecture said... "they don't understand why this is a problem for them... yet."

In reply to by karenm

ZIRPdiggler Keyser Sun, 05/13/2018 - 23:40 Permalink

They cant. that's why block chain works. trustless. no third party. its so efficient that HSBC is willing to buy into it's transparency and sacrifice criminality inorder to gain 'first mover advantage' in the field. being a first mover is every bit as lucrative as stealing. do I have to draw pictures for you 'tards?

In reply to by Keyser

the Savage Bitchface-KILLAH Mon, 05/14/2018 - 01:22 Permalink

blockchain is cool, crypto on the other hand does nothing but accelerate the NWO.  If government wants to track each transaction from each individual, crypto would be the ideal method. 

right now, crypto is an alternate form of currency, but if it ever became mainstream, you couldn't spend a dime without the government knowing about it - now that would truly be scary!

In reply to by Bitchface-KILLAH

ZIRPdiggler joego1 Sun, 05/13/2018 - 23:36 Permalink

We already live in a cashless society, dummy. I've been using a debit card for 20 years now. How bout you? You still keep it under the mattress? Do you really believe there are 5 trillion in paper USD currency floating around out there or that the Fed actually printed those dollars, when it expanded its balance sheet?? They pressed a button and created electronic currency. Quit eating retard sandwiches. that goes for all of you gold bug morons.

In reply to by joego1

Bunga Bunga karenm Mon, 05/14/2018 - 01:43 Permalink

They can't transfer money on their blockchain, just paperwork. I wonder why they still use paper and did not come up with a distributed data base, a technology which has been known for decades. A blockchain in a private system is quite inefficient. Maybe they have to hype this R3 bullshit, which was started 3 years ago, essentially copying Bitcoin technology.  

In reply to by karenm

RedDwarf karenm Mon, 05/14/2018 - 10:44 Permalink

"Yes, cryptos and blockchain will "end the bankster cartel" and "save us all""

Blockchain is a fiat killer.  You are conflating two things.  Yes, since 1913 they have been the same, but that is not the norm through most of history.

"If so, why are big banks embracing it?"

Banks existed before this age of fiat, and they will exist afterward.  They adopt it because it is more efficient and if they do not someone else will and they will go out of business.

In reply to by karenm

ISEEIT Sun, 05/13/2018 - 23:07 Permalink

And yet 90%+ of the general population hasn't a clue what blockchain is.

Sure, they've heard of bitcoin..even crypto..But blockchain is the revolution.

ZIRPdiggler Sun, 05/13/2018 - 23:29 Permalink

One of these days, you crusty old fucks are gonna have to trade your horses in for the automobile. You're going to have to accept that this is the future and it's here to stay.....blockchain and crypto, that is.  What happens to it, no one can know, but you're totally delusional if you think people in the 21st century will be transacting with precious metals. You're even more delusional if you think there's gonna be some cataclysmic economic apocalyptic catastrophe.  I'm sure the banksters will ruin it and pollute it with their usual playbook shenanigans and thievery but failure to heed these facts is just belligerent denial of reality.