By Elton Gomes
British banking major HSBC has completed a trade finance transaction using blockchain. The transaction involved an export by Reliance Industries to an American client, and massively reduced the time taken for processing the documents.
The transaction included a blockchain-enabled letter of credit which facilitated a shipment between Reliance and the US-based Tricon Energy, a joint statement issued by HSBC India and Reliance said, PTI reported.
The blockchain technology is a distributed database that maintains a constantly growing list of ordered records called blocks. The technology is deemed to be very transparent as all the stakeholders can view progress in real time.
The use of blockchain offers significant potential to reduce the timelines involved in the exchange of export documentation from the extant 7-10 days to less than a day, said Reliance Industries joint chief financial officer Srikanth Venkatachari, Live Mint reported.
Explaining the current system, Reliance said that at the moment, buyers and sellers use paper-based letters of credit to complete transactions wherein physical documents are sent to each party via post, courier, or fax.
Although the current system surely provides a high level of certainty, the time and cost involved in processing the documents could be deterrents for exporters.
The transaction between Reliance and HSBC allowed a digital transfer of the title of goods from the seller to the buyer. The letter of credit was issued by ING Bank for Tricon Energy USA (which was the importer) with HSBC India as the advising and negotiating bank for Reliance Industries.
The blockchain platform was integrated with the electronic bill of lading (eBL) platform. A lading bill is used to issue and manage an electronic bill of lading.
The joint statement claimed that the solution is a significant improvement for any organisation which is involved in buying and selling goods internationally, as it helps in bringing together all parties on one platform.
How can blockchain facilitate transactions?
HSBC’s head of global banking and markets Hitendra Dave stated that blockchain has had a notable impact on trade finance transactions. Dave added that the technology enables greater transparency and enhanced security as well as makes things simpler and faster.
In addition to that, blockchain technology can also ensure cost-effectiveness, quicker turnaround, and potentially unlock liquidity for businesses, he said further, PTI reported.
Which other banks are working on blockchain solutions?
Indias first blockchain transaction will surely lead to other players following suit. Other domestic lenders, such as ICICI Bank, SBI, and Yes Bank, among others are reportedly working on blockchain solutions and count trade finance as an area where the technology can be used most efficiently due to its ability to reduce time.
Financial services industry is slowly embracing blockchain
Along with banks and other financial institutions, the National Stock Exchange of India (NSE) also seems keen on experimenting with blockchain. Keeping in mind the way in which blockchain has revolutionized the financial services sector, the technology holds the enormous promise of strengthening the sector, a top official with the NSE claimed.
“The NSE is experimenting with Blockchain technology, an NSE CTO Sankarson Banerjee told IANS on the sidelines of the fifth Cisco India Summit in June 2018.
Banerjee added that blockchain can make things highly distributed and resilient in ways that traditional data storage technologies cannot. He further highlighted blockchains transparency aspect wherein one can distribute a record to thousands of people and yet everybody would be sure that nobody can fake that record.
Furthermore, media reports suggested that even the Reserve Bank of India (RBI) was interested in emerging technologies like blockchain. The RBI was reported to have set up a new unit to research and potentially draft rules and supervise new emerging technologies in the future.
Elton Gomes is a staff writer at Qrius