HSBC and ING have carried out their second live trade finance transaction using blockchain technology, making significant progress from the first pilot. But it will take another year to bring the solution into production.
The transaction is the second blockchain pilot the two banks have run together using the Voltron platform for digitising trade finance documents. The first made global headlines in May when the banks executed a blockchain-based letter of credit together with trading giant Cargill.
Voltron is aimed at making the exchange of trade finance documentation digital and more efficient. Built on R3’s blockchain-based Corda framework, it is run by a consortium of eight founding members: Bangkok Bank, BNP Paribas, CTBC Holding, HSBC, ING, NatWest, SEB and Standard Chartered.
So far, ING and HSBC are the only banks that have run live tests on Voltron. The new pilot was conducted last week and covered a polymers shipment from Reliance Industries in India to Tricon Energy in Peru. The letter of credit was issued by ING for Tricon Energy, with HSBC India as the advising and negotiating bank for Reliance Industries.
The transaction saw the expansion of the Voltron platform to enable the digital transfer of title of goods on the blockchain. This was done by integrating Bolero’s solution for issuing and managing electronic bills of lading (eBLs) on the platform.
The bill of lading was a feature that HSBC and ING had initially planned to execute as part of their first pilot, but had at the time not finished integrating Voltron with Bolero’s systems.
Chris Sunderman, blockchain initiative lead for trade finance services at ING, tells GTR: “We knew in May that we had missed the digital presentation of the bill of lading, but we wanted to test the Voltron application anyway, to get feedback from our clients. So what we added in the pilot with Reliance Industries and Tricon Energy was the critical step of change of ownership, the electronic bill of lading. That saved us a lot of time.”
The exchange of documents happened on Voltron in one day, down from the typical seven to 10 days that a standard, paper-based process takes (in which documents are usually sent to each party in the transaction by post, courier or fax). It then took another two days to close the transaction, including payment.
Speaking to GTR, Joshua Kroeker, blockchain lead for global commercial banking at HSBC, emphasises that “where digitalisation really makes a difference is in the earlier steps, from presentation to acceptance”. This, he adds, was where the pilot provided “the key time benefit” for the clients.
One of the next steps for the Voltron project is to incorporate the solution with other players in the electronic bill of lading space, explains Sunderman at ING.
“When you look at the trade ecosystem, the world is large, and companies do not per se work with one provider of e-documents; there are also companies like essDocs and eTitle. So within project Voltron, the banks agreed to investigate and analyse the application of other solutions as well. We need to incorporate other solutions to make the lives of our clients as easy as possible.”
Sunderman adds that the consortium is currently in discussions with essDocs, which he says is interested in working with them. Another step will be for the remaining banks in the group to test the solution. After formally launching the Voltron platform at Sibos in October, members of the consortium are now set to trial it extensively for additional functionality, using real-world scenarios. According to HSBC’s Kroeker, more transactions will be executed “in the near future”.
Bringing the solution into production, however, will take at least another year, Sunderman explains.
“We have to involve all banks in the consortium in executing pilots, and upon these pilots we will get feedback from our clients, which is essential for the improvement of the solution, but also to further develop Voltron into a market-fit solution. And when that has been achieved, we will have to make it into a scalable solution, which is something different. So it will take some time to get there.”
He concludes that the bank hopes to get the first big client on Voltron at the end of 2019, or early 2020.