HSBC has completed a cross-border, renminbi (Rmb)-denominated letter of credit blockchain deal, in what the bank says is the world’s first transaction of its kind.

In this latest development in the ongoing march towards the digitisation of trade, Hong Kong-based MTC Electronic Co Limited (MTC) exported a shipment of raw materials to its Shenzhen-based parent company, Shenzhen MTC. Using the Voltron blockchain platform, HSBC China issued a digitised letter of credit (LC) on behalf of Shenzhen MTC to HSBC Hong Kong. MTC then reviewed, verified and uploaded their own trade documents to the platform to complete the transaction.

This is HSBC’s ninth blockchain trade finance transaction using Voltron and follows China’s first cross-border LC blockchain transaction in April.

Voltron, based on R3’s Corda framework, is a blockchain-based application for the issuance of digital letters of credit and run by eight banks, including HSBC. The consortium has already completed a range of live pilots in different industries and geographies.

Conventional documentation exchange for paper-based LCs usually takes anywhere between five and 10 days. This exchange of fully electronic documents was completed in 24 hours.

“Removing paper from the exchange increases the velocity of trade: more trade can be conducted in the same amount of time,” explains Ajay Sharma, regional head of global trade and receivables finance for Asia Pacific at HSBC.

Digitising trade in the Greater Bay Area has become a key focus for banks in Asia. The Chinese government is planning to develop the 11 cities in the region, including Hong Kong, Shenzhen, Macau and Guangzhou, into a “world-class city cluster”.

It is a significant trade centre – if it were a country, it would be the world’s fourth-largest exporter, ahead of Japan. At GTR Asia 2019, held in Singapore earlier this month, banks and fintechs alike discussed the opportunities – and challenges – involved in reshaping the regional trade ecosystem. The potential is clear: according to Swift, a whopping 1.2 million LCs worth US$750bn were issued into and out of China in 2018.

“The Greater Bay Area is home to the world’s largest air cargo centre and three of the world’s busiest container ports,” says Sharma. “Such an important trade hub is ripe for digitisation.”

But many in the region remain sceptical about the rate of change. One corporate conference participant told GTR that, although they are cheered by the flow of news around proofs of concept and blockchain pilots, they are still reluctant to invest either time or money in the fledging initiatives until scalability is proven. “What we are seeing are very narrow use cases,” the company representative said, adding that “we aren’t yet convinced that anything outside of these very controlled examples can be fully digitised”.