Two of the largest international banks HSBC and Bank of America Merrill Lynch in collaboration with the Infocomm Development Authority of Singapore, have successfully demonstrated the utilization of the blockchain technology in setting Letters of Credit transactions.
Typically handled in the industry of trade finance, Letter of Credit is a letter provided by a bank or a financial institution to guarantee that the seller will receive a payment from the buyer exactly on time for a specified amount. If the buyer ever fails to deliver the payment by the agreed period, the bank is required to fulfil the responsibility of the buyer and pay the rest of the amount written on the contract.
On August 11, HSBC and Bank of America successfully implemented the blockchain technology in the settlement of Letter of Credit (LC) transaction, demonstrating that autonomously handled contractual agreements in the trade finance industry can reduce nearly 50% of banks’ costs.
The development team of two banks leveraged the Linux Foundation’s open source Hyperledger software to develop an open smart contract-based network, which enabled parties involved in LC transactions to create digital contracts which automatically processed payments and contracts without the presence of the