HSBC has financed its first transaction on we.trade, a blockchain-based platform for open account trade in Europe.
According to the bank, the transaction forms part of a second round of pilots that the we.trade consortium members kicked off in June.
we.trade is a Hyperledger Fabric-powered solution for managing, tracking and protecting open account trade transactions between SMEs in Europe. The bank-led initiative to build the platform has been underway since 2017 and was incorporated as an independent legal entity in April last year. Today it has 12 shareholders: CaixaBank, Erste Group, Deutsche Bank, HSBC, KBC, Natixis, Nordea, Rabobank, Santander, Société Générale, UBS and UniCredit, who had all signed licence agreements to use the solution by January 2019.
The platform facilitates three steps in an SME’s trade journey. First, a company can use the solution to find trusted counterparties and transact online, with we.trade digitalising the whole process from order creation to payment execution and giving visibility on transaction and shipment status.
Secondly, companies can use we.trade to access a so-called bank payment undertaking (BPU) from their banks. HSBC refers to this instrument as “an online equivalent of a letter of credit (LC)”. It involves the buyer’s bank providing the seller with an irrevocable undertaking to pay the invoice at maturity date.
Finally, the seller can request financing, which involves its own bank providing early payment by discounting the BPU.
While HSBC has taken part in a range of transactions since we.trade first started live piloting in July last year, the bank has so far not provided financing against the BPU.
Speaking to GTR, Ian Tandy, head of global trade and receivables finance for HSBC UK, explains: “We’ve done a number of transactions. It’s a pilot. This is the first transaction where we have had two buyers use the system end-to-end, including the ability to write the invoice, agree to trade terms, provide the BPU, and additionally receive funding off the back of that BPU.”
The transaction involved HSBC’s customer Beeswift, a Midlands-based manufacturer of protective equipment, selling goods to a company in the Netherlands banked by Rabobank. Using we.trade, the parties were able to create and accept a purchase order online. The buyer further used the platform to obtain a BPU from Rabobank, with Beeswift, the seller, receiving financing from HSBC against the BPU.
Tandy explains that while a BPU is a new financial instrument, it is similar to that of a traditional payment guarantee between two parties. He further notes that while clients today are able to apply for a letter of credit and LC financing digitally, the documentation needed (such as bills of lading, invoices, packing lists and customs certificates) for the traditional LC product is still “very much paper based”.
Digitising the whole process on we.trade meant that Beeswift could complete the trade finance transaction in less than 24 hours, down from the 10-12 days it can take for a traditional LC.
According to an HSBC spokesperson, the bank has yet to commercialise the platform and its clients are currently using it “at zero cost”.
HSBC wasn’t able to comment on whether it will be able to offer cheaper financing as a result of we.trade’s efficiencies. According to Tandy, the strength of the solution is mainly that it makes trade finance “transparent and more intuitive”.
We.trade is one of a number of trade finance-focused blockchain initiatives that HSBC is currently involved in, having also been actively piloting Voltron, a Corda-based solution that digitises the letter of credit.
Voltron first made headlines around the globe in May last year, when HSBC and ING announced they had used the solution to conduct their first live, commercial trade finance transaction on blockchain for agrifood trading giant Cargill.
More recently, HSBC has been working with BNP Paribas to test essDocs’ electronic bill of lading capability on Voltron, and with Landmark Group in the UAE to connect Voltron with ReChainME, a solution for the exchange of documents related to the physical supply chain.
According to Tandy, however, Voltron and we.trade are two “different systems”.
While Voltron digitalises the letter of credit and is for companies of all sizes worldwide, we.trade’s main aim is to help SMEs transact, with the BPU and BPU financing being one part of the solution. Initially focused on Europe, we.trade plans to expand at a later stage.
When contacted by GTR, we.trade was not able to comment on how many transactions the platform has facilitated to date, but says it has experienced “consistent transaction growth of an average of 38% per month throughout 2019”.
The blockchain company adds that it now plans to open a public investment round in early 2020 “to ensure the platform growth”.