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Together in Electr(on)ic Dreams: Cargill, HSBC and ING's Blockchain Breakthrough


In this exclusive joint interview, Joshua Kroeker, Senior Innovation Manager, HSBC and Chris Sunderman, Senior Commercial Project Manager, ING, talk to Eleanor Hill, Editor, TMI, about the banks’ blockchain collaboration, and how they were brought together by international food and agriculture conglomerate, Cargill to conduct a live trade transaction using Corda.

Back in May 2018, news broke that HSBC and ING had successfully executed a live trade finance transaction for Cargill using R3’s Corda blockchain platform. For those who didn’t see the story at the time, the transaction involved a bulk shipment of soybeans from Argentina, through the Geneva trading arm of Cargill, to Malaysia, through Cargill’s Singapore subsidiary as the purchaser.

A Letter of Credit (LC) was issued using Corda by HSBC to ING; the two banks – both members of the R3 Consortium – were acting on behalf of the Cargill entities. What’s so impressive about the transaction is that the whole exchange was completed within 24 hours. Here’s how it came about:

 

EH: How did you find a client willing to participate in a live transaction?  Why was Cargill keen to take part?

CS: In the development of solutions that use blockchain technology feedback from clients is an absolute requirement for a successful application and doing live transactions with clients is essential to further develop the solution to a scalable market fit solution. Cargill was keen to participate, since they are eager to innovate within the trade finance industry, in which they are an important player. Companies of the size of Cargill will play an important role in the successful adoption of innovations such as this one.

JK: Cargill was an excellent first client and a textbook early adopter. They are a huge trading corporate and they have been actively testing and using the latest technologies to try to improve their internal processes. Naturally they were keen to explore whether blockchain could benefit their business.  

 

EH: Could you talk through some of the technical aspects of this live transaction?

JK: All participants were provided with their own ‘node’ in the permissioned blockchain network, set up by our technical vendor, CryptoBLK. Each node was customised to their role (buyer, seller, issuing bank, etc.) and was only accessible by that party. The process of an LC begins with the buyer, and then information starts to be replicated to the other participants as dictated by the smart contracts built into the application as the transaction progresses.

Each of the nodes was distributed around the world on different private Amazon Web Services (AWS) cloud instances, so this was truly a global transaction. Each user interacted with their node through a web-based interface.

 

EH: How did this transaction compare to a traditional LC transaction? What were the benefits for Cargill?

JK: In a traditional LC transaction, up to four different applications are used, plus a lot of paper physically moving between offices. In this transaction, everyone used the same application to communicate and to transfer assets such as the Letter of Credit. This provided everyone with excellent visibility and clarity as to what stage the transaction was at, and who needed to act next.

Because there wasn’t the need to send paper as supporting documentation, which was simply uploaded instead, the seller was able to receive payment 24 hours after uploading the supporting documentation, rather than the 5-10 days it would normally take for the paper to be sent, received, and processed.

CS: This is an amazing result and proves once more the benefits the blockchain can offer to all participants. Another key aspect of this transaction was transparency in the LC execution, the ease of inputting data in the application, and the ability to quickly react, which saved a lot of time.

 

EH: How promising is this live transaction for the future of blockchain in the LC/DC space?

JK: Very.  We firmly believe that this is the future of documentary trade.

CS: Fully agreed, but we have to bear in mind that it will take time to develop it to a point where we can offer it as a marketable solution to our clients.



Working together

 

EH: Apart from both being R3 members, why did HSBC and ING decide to collaborate on this transaction?

JK: For both banks, it’s important to work together with clients on blockchain based solutions that make trading easier, more efficient and safer for our clients. For this transaction, ultimately HSBC and ING were brought together by the customer. Once Cargill was identified as the customer, they selected their Geneva trading entity as the supplier and ING as the advising bank.

CS: Collaboration is key. By the nature of blockchain; it can only be successful when all participants in the flow adhere to the blockchain process.

 

EH: How easy and/or challenging was it working together?

JK: Even though we required alignment between IT, business, legal, and external communications, I would say that the process went very smoothly. We have a good relationship.  We have been working together since the early days of this project. Co-operation works well if you have the same goals. Both banks are keen to bring innovation to trade finance industry as soon as reasonably possible.

CS: We shared common challenges too like risk assessment, internal approval processes and the timing of the transaction. Collectively we had four parties working in four different time zones, but even that went smoothly, driven by a joint purpose and sense of urgency.

 

EH: What was the most surprising thing you learned through collaborating?

JK: While getting everything set up takes some time, once we started working on the transaction everything happened very naturally. Banks have a long history of collaborating on transactions using the SWIFT network among others, but it was great to see collaboration working on a distributed ledger. We also learned what works well and where we have more work to do. We’re continuing development of the application and having direct feedback from all participants, who are experts in processing these types of transactions, is extremely valuable.

CS: There were key learnings from both Cargill and our Operations departments. Having direct feedback from all participants, who are experts in processing these types of transactions is extremely valuable.

 

EH: How can others get involved in such projects?

JK: Right now, other banks can get involved through R3. We are currently setting up the next phase of the project, so there is an immediate opportunity to reach out and be a direct participant in the next phase.

For corporate customers, of course we will continue to run live transactions over the next few months, and collect further feedback and to test the network and application, and each of the twelve banks involved in R3 can be contacted about this.  But it’s not just banks and corporates who can participate…

CS: There’s a lot of work to be done yet, and we’re keen to connect to other parties who are involved in trade, such as ports, customs, service providers for tools like electronic bills of lading, and so on.

 

EH: Did anyone else hear the sound of a gauntlet being thrown down?


Photo of Eleanor Hill
Eleanor Hill
Editor, TMI