The letter of credit transaction in trade finance is a relatively neglected area when it comes to digitization, which is why HSBC bank chose this transaction to test out its blockchain-related initiatives, Joshua Kroeker, blockchain lead for Global Commercial Banking Growth and Innovation at HSBC, told Bank Innovation.

“The letter of credit transaction had fallen behind in the digitalization and automation transformation happening in other areas,” Kroeker said. “This is still a paper-intensive, time-consuming process, and many of our customers have named this as a major pain point.”

So the bank decided to apply blockchain technology  in order to address this issue. On Monday, HSBC announced a successful letter to credit transaction with ING Bank using software firm R3’s blockchain platform called Corda. The transaction involved a bulk shipment of between agricultural and food corporation Cargill as seller and its subsidiary as the purchaser.

HSBC first started working on its blockchain initiatives in 2015, Kroeker said. After developing various proof-of-concepts, the bank decided to move forward with piloting these efforts in 2017.

The next step for HSBC is to perform another letter of credit transaction with additional bank members on the Corda platform, Kroeker said. Once that is completed, the bank will focus on further integrating the technology into its trade finance operations.

In addition to trade finance, HSBC is working on other blockchain initiatives across different banking areas.