HSBC and Bank of America Merrill Lynch have created a blockchain technology-based version of Letter of Credit (LC) transactions in cooperation with Singapore’s IDA.
The two lenders and the Infocomm Development Authority of Singapore (IDA) used the Linux Foundation’s open source Hyperledger software to develop the new application.
Thanks to the distributed ledger technology, importers, exporters and the banks which serve them will be able to share information faster and safer.
The blockchain-based solution simplifies the LC transaction process by allowing automatic execution of the deal through a series of digital smart contracts.
The proof of concept has also reduced manual processing in the transactions.
Vivek Ramachandran, global head of product for HSBC’s trade finance business, said the consortium will conduct further tests of the commercial use of the new application with businesses and their banks.
He stressed the need of innovation in the LC transaction process which is based on 20th century technology.
The Hyperledger Project of the Linux Foundation is aimed at developing a cross-industry open standard for distributed ledgers.
Distributed ledgers enable the tracking and trading of anything of value in considerably shorter time frames. For example, through the use of this technology securities can be settled in minutes instead of days.
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