Barclays and an Israel-based start-up company have carried out what they say is the world’s first trade transaction using blockchain technology, cutting a process that normally takes between seven and 10 days to less than four hours.
The transaction guaranteed the export of almost $100,000 worth of cheese and butter from Irish agricultural food co-operative Ornua – formerly the Irish Dairy Board – to the Seychelles Trading Company.
The deal was executed via a blockchain platform set up by Wave, a firm that came through a Barclays development programme.
The blockchain technology provides an electronic record-keeping and transaction-processing system, which lets all parties track documentation through a secure network and requires no third-party verification. This contrasts with the present cumbersome and lengthy paper-heavy process.
Proponents of the technology, which originally came from digital currency bitcoin, say that because it does not require manual processing, nor authentication through intermediaries, it makes transactions faster, more reliable and easier to audit.
Widescale adoption of blockchain, though, is still between five and 10 years away, many say.
“We have proved the reality of this technology and the client, Ornua, has asked us when they can do the next transaction in this way, which proves how user-friendly the entire process was,” said Barclays’ global head of trade and working capital, Baihas Baghdadi.
The transaction was executed by means of a letter of credit – a widely used way to cut risk between importers and exporters.
But such transactions typically involve a complicated paper trail that requires international courier services, is vulnerable to document fraud, and can take as long as a month to be completed.
In this transaction, both parties were able to transfer the shipping, insurance and other original documents that had been cryptographically sealed via the blockchain.
“I have been here for more than two decades and I never even dreamed of a solution where you can remove completely the documents from the circle and just get everything moving around the world on an electronic basis within minutes, rather than days of couriers and shipping and all that,” said Baghdadi.
Barclays is not the first to experiment with using the technology for trade finance – a sector identified as one of the most ripe for blockchain-based innovation – though the bank says this marked the first time that a trade transaction had been executed this way in the real world, rather than in a lab.
Last month an HSBC and Bank of America Merrill Lynch venture and fintech firm R3 said separately that they had found ways to simplify trade finance processes with blockchain.
“Moving to paperless trade would be hugely beneficial in supporting the supply chain, through reduced costs, error free documentation, and fast transfer of original documents to our customers worldwide,” said Ornua group trade finance manager David Rourke.