HSBC Global Head of Trade: “Blockchain technology could revolutionise trade”

By Alex Hammond | 19 January 2017

Seven of the world’s leading global banks, HSBC, Deutsche Bank, KBC, Natixis, Rabobank, Société Générale and UniCredit this week announced an agreement in principle to develop a shared blockchain platform with the intention of making cross-border commerce a more reasonable process for small and medium-size businesses (SMEs).

This new product, which is being called the ‘Digital Trade Chain’ is seen as the latest development in banking where the adaption of blockchain technology will significantly improve the experience of the user.

In practice, this means simplifying the trade finance process for SMEs, which is currently fraught with complicated trade transactions that require management and tracking. Documentary credit, which is often used by larger businesses to circumnavigate the issues the current system throws up relating to risk, is not as suitable for SMEs.

The banks will now work together to develop a scalable Digital Trade Chain using pooled resources and expertise. A focus will be placed on building critical mass for DTC in several key European markets: Belgium and Luxembourg (KBC), France (Natixis, Société Générale), Germany (Deutsche Bank, UniCredit), Italy (UniCredit), the Netherlands (Rabobank) and the UK (HSBC).

Vivek Ramachandran, Global Head of Trade Products at HSBC, offered further perspective on how blockchain will improve trade in the near future.

Blockchain can pull trade into the digital age

Blockchain technology could revolutionise trade – making it cheaper, quicker and simpler for businesses to trade internationally.

From “letters of credit” to “bills of lading”, merchandise trade today is heavily reliant on paper documents. In our digital, connected world there is a growing need to modernise trade’s many paper-based processes. Digitisation would reduce bureaucracy, improve security, minimise errors and make it easier to amend documents, ultimately saving time and money.

Dozens of financial services organisations are exploring how blockchain – which records transactions in blocks that then form chains of permanent data – could be applied to trade as well other key processes. Technical progress has been rapid. And over the past year there have been a series of announcements from organisations demonstrating how blockchain technology could, in theory, be used.

HSBC, Bank of America Merrill Lynch and the Infocomm Development Authority of Singapore, for example, have published a proof of concept showing how blockchain technology could be applied to letters of credit. More than USD2 trillion of trade currently depends on the physical exchange of letters of credit, which are issued by banks and used by importers and exporters to reduce the risk of trading with each other and give suppliers certainty over payment.

In November HSBC and Reliance Industries completed the first electronic exchange of letters of credit in India. In fast-growing countries such as India, where non-tariff barriers such as paperwork requirements represent a potential drag on trade, a switch to online technologies could help to reduce delays, cost and uncertainty.

But there are other areas of trade that could also benefit from adopting blockchain technology. It could, for example, be used to digitise bills of lading, the documentation that details what cargo is aboard and where goods or commodities are being shipped.

Testing the theory behind blockchain is one thing, but the real work is in creating a scalable, legally compliant platform that exporters and importers want to use. There are significant hurdles to clear in terms of the legal and regulatory environment – trade may be global but each country has its own laws and regulations so getting policymakers on side is essential. It will also require significant investment.

Within three to five years, however, we believe it would be possible to use blockchain technology on a “closed network” basis – whereby transactions are visible only to registered participants including buyers and sellers. But this can only happen if there is collaboration on a global scale.

Banks and others must continue to talk to each other as they experiment and test ideas. At the same time companies involved in trade also need to engage in the process, outlining how blockchain technology can work for them. It is only by working together that we will create a platform that all those involved in trade want to use, from banks, exporters and shippers to regulators and lawmakers.

Innovation in banking is about understanding what customers want and need and using new technology to deliver it to them. Trade needs to find a 21st century answer to an age-old problem. Blockchain could provide at least part of the solution.  

Vivek Ramachandran is the Global Head of Product and Propositions, Trade and Receivables Finance, HSBC.

Prior to joining HSBC, Vivek was co-founder and CEO of VTA, a boutique advisory firm working with banks across Europe and Asia. Vivek was previously Managing Director of International Product at Barclays, responsible for the full suite of Corporate Banking products outside the UK. He was responsible for integrating and growing the Corporate Banking business across 14 markets in Africa, establishing new operations in Asia and the US, and restructuring the legacy portfolios across Europe and the Middle East.

He has a PhD in Economics from Carnegie Mellon University, where he taught MBA and undergraduate students.

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