# Processing letters of credit digitally in trade finance

> In May 2018, banks HSBC and ING conducted a pilot transaction on the Voltron blockchain platform for agricultural conglomerate Cargill. During this trial, a letter of credit was issued and processed completely digitally on a distributed ledger. The procedure drastically reduced the traditional multi-day, paper-based exchange of trade finance documents to just a few hours.

**Sector:** Tertiary sector · **Industry:** Banking and financial services · **Organisation:** HSBC, ING, Cargill · **Maturity level:** Pilot

Canonical URL: https://www.sapientblock.com/en/use-cases/hsbc-akkreditive-aussenhandel-digital-abwickeln

## Documentation status

- **Project status:** Pilot
- **Evidence:** Evidence medium
- **Editorial review:** pending

## Description

The major banks HSBC and ING, together with the agricultural trading group Cargill, tested a procedure to fully digitalise letters of credit. In traditional foreign trade, a letter of credit requires the laborious sending of numerous paper documents by post or courier, which often takes several days. By using a shared distributed ledger, all parties can view and approve the same document status without any time delay.

In May 2018, HSBC and ING conducted a pilot transaction via the Corda-based platform Voltron to secure a real trade transaction for Cargill. HSBC acted as the issuing bank for the letter of credit, while ING took on the role of the advising bank. The companies involved exchanged the data required for the letter of credit directly and digitally instead of sending physical documents across borders. This reduced the typical processing time from five to ten days to just a few hours. The pilot demonstrated that distributed ledger technologies are practical in the regulated banking environment and can minimise the risk of document loss or delays.

## Benefits

- Faster release of goods deliveries at destination ports
- Lower capital commitment costs in foreign trade transactions
- Direct paperless communication between issuing and advising banks
- Acceleration of document verification from several days to a few hours
- Complete transparency of the current approval status for all transaction parties
- Significant reduction of transmission errors and fraud risks
- Elimination of manual document checks and physical archiving
- Real-time insight into status changes without manual enquiries

## Challenges

- High coordination requirements for consortium and network standards among competing banks
- Integration effort into existing core banking and ERP systems
- Legal uncertainties regarding digital bills of lading in some jurisdictions
- Need for uniform technical connectivity of all participating financial institutions
- Adjustment requirements for established verification routines in document handling

## Technology foundation

The Voltron platform is based on the distributed ledger technology Corda from R3. Corda was specifically designed for financial institutions and enables point-to-point encryption, making sensitive trade data accessible only to authorised transaction parties.

## Sources

- [Blockchain-based platform for letters of credit goes live](https://www.euromoney.com/article/27bjsstsqxhkmh1wmk61c/treasury/blockchain-based-platform-for-letters-of-credit-goes-live/)