HSBC's new digital trade finance solution is NOT a blockchain

HSBC does $1m of global trade per minute. The bank's new end-to-end digital trade finance tie up with Tradeshift, the cloud-based global commerce platform, aims to leverage hundreds of billions of dollars in working capital up and down supply chains – and it's not being done using blockchains for a change.

HSBC has been active in the world of blockchain-based trade finance proofs of concept. Vivek Ramachandran, global head of trade and receivables finance at HSBC is known for taking a refreshingly original approach to this; some time ago he called for R3 and Hyperledger to "put their heads together" and collaborate in this area of shared global commerce.

Ramachandran said: "When we talk about supply chain financing or physical supply chain management, there have been multiple attempts by banks working with supply chain providers and you have a physical supply chain process then the data is pulled out of the physical supply chain process and sent through to a bank and the financing takes place.

"What we built with trade shift is the first genuinely integrated finance institution built into the physical supply chain. From a buyer perspective and seller perspective it's a completely seamless experience."

Christian Lanng, CEO and co-founder of Tradeshift, pointed out that there is around $9tn (£7tn, €8tn) sitting in global supply chains right now. The HSBC Tradeshift solution will stretch deep into the supply chain, "so unlike traditional programmes it's not restricted to the larger suppliers. This is a solution that can reach in to the smaller suppliers".

Using the triggering of Article 50 as an example, Lanng said, "you may want to adjust to changes very fast; but if everything is paper you can't. So that's what we deliver for our customers: real-time digital supply chain.

"Then getting the financing built into that is obviously working capital. It's one of the largest constraints if you are a supplier and if you can build financing into that solution, you unlock the working capital potential in the supply chain. I think companies are competing less and less and supply chains are competing with each other now.

"So as a large buyer you want to strengthen the working capital position of your suppliers and your contract with them gives them that security which today you don't have a platform that capitalises on that. This does."

On the subject of blockchains, Lanng said: "We did debate how to put blockchain into it. You don't need a distributed ledger if you can do it on a centralised ledger. The data at the end of the day belongs to the clients; it's not our data.

"Tradeshift is essentially like a centralised cloud ledger for all of our customers. To enable that on a peer to peer ledger is almost trivial, to be frank."

Ramachandran added: "We are on step one – building and integrating financing into the physical supply chain is a start. Real time information between different systems, embedding smart contracts, evolution along that front is yet to come. I think the technology should never be the story. Unfortunately with blockchain and DLT it ends up becoming the story."

The partnership will be soft launching in the summer in Europe and then will roll out globally.

However, the world is a big place and if you look hard enough there's probably a blockchain-based trade finance solution being tested out somewhere. And today that place is Hong Kong, where HSBC was also involved in a proof of concept with the Hong Kong Monetary Authority (HKMA), Deloitte and a bunch of other banks - Bank of East Asia, Hang Seng Bank and Standard Chartered Bank (Hong Kong).