HSBC has carried out two digitised letter of credit (LC) transactions in the Middle East, with the bank claiming it’s the first time blockchain has been used for trade finance in Oman, Saudi Arabia and Bahrain.
GTR spoke exclusively to the bank’s head of trade and receivables finance in Mena and Turkey, Sunil Veetil, about last month’s deals, both of which were carried out on the letter of credit blockchain solution formerly known as Voltron, built on R3’s Corda platform.
In one, a fully digitised LC was issued by HSBC UAE when the Oman Oil and Orpic Group exported polypropylene, a thermoplastic polymer, to the Abu Dhabi National Carpet Factory. HSBC Oman was the advising bank on the deal.
In the second, the Bahrain-based company Alba shipped homogenised aluminium billets to Saudi Arabia’s Altaiseer Aluminium Corporation (TALCO). The Saudi British Bank (SABB) issued the LC on behalf of TALCO, with HSBC Bahrain advising.
A spokesperson for HSBC tells GTR that the Voltron platform is in the midst of a rebrand, and that its new commercial moniker will be announced in the new year.
Whatever the name, HSBC has now used the letter of credit platform for all 14 of its global blockchain transactions to date.
Speaking about the benefits of using blockchain, Veetil explains to GTR: “LCs are a very cumbersome and manually intensive process. It takes seven to 10 days to process a transaction, physical documents have to move, and it needs a whole lot of checks from a risk management perspective and from an operations perspective.”
“However, by digitising this we were able to compress the time frame from those nine to 10 days to almost a few hours and that significantly increases the velocity of trade,” he adds.
Out of the 14 blockchain trade finance transactions HSBC has now carried out, four of them have involved businesses in Mena. The bank completed two pilots in June, with the bank issuing two digitised letters of credit for the shipment of goods from Bee Dee industries in Hong Kong to the Landmark Group in UAE.
For Veetil, this shows HSBC is very keen to bring the technology into this part of the world. But he also says the demand is there too, with businesses and political bodies pushing for digitisation in the region.
“Governments in this part of the world are extremely keen on digitising their economies. In the UAE, for example, they have a minister of state for artificial intelligence, and then they have smart government initiatives, such as establishing the Global Blockchain Council.”
With a few more pilots on the horizon Veetil says HSBC’s next step will be to try commercialise the technology in the region and globally in 2020.
However, he admits there are challenges facing blockchain technology for trade finance: “[One factor] is obviously education on blockchain. The second factor is there are quite a few counterparties in any particular transaction… and given there are so many different platforms that are emerging, and different counterparties have different legacy systems, the question is how do we all bring them together into a common platform?”