Bank of America Merrill Lynch and HSBC are the latest banks to announce plans to use blockchain technology to improve the paper-heavy processes behind letters of credit. The banks are working  with the Infocomm Development Authority of Singapore (IDA) and using Linux Foundation’s open source Hyperledger technology, supported by IBM.

The consortium says its proof of concept shows that there is the potential to streamline manual processing of documentation, reduce error rates and improve security in trade finance. They now plan to carry out further testing on the commercial application with selected partners.

Ather Williams, head of global transaction services at Bank of America Merrill Lynch, said: “We are continuously looking for ways to simplify and improve transaction processing for our clients. Blockchain has reshaped our thinking on how to make transaction processes more efficient and transparent for all parties. The success of this proof of concept is a significant development towards digitising trade transactions, potentially resulting in considerable benefits to the supply chain process.”

Vivek Ramachandran, global head of product for HSBC’s trade finance business, said: “Many people are talking about the theory of Blockchain, but for the first time we can start to see how this technology might be used to solve the real world challenges our customers face. It’s really exciting to have a valid proof of concept. Letters of Credit are an important part of the trade system, but they are based on 20th century technology, not 21st. Our challenge is to take this from concept to commercial use; making it quicker and easier for businesses to connect with new suppliers and customers at home and abroad.”

Khoong Hock Yun, assistant chief executive of IDA Singapore’s Development Group, added: “A letter of credit or LC conducted on Blockchain enables greater efficiencies and visibility in trade finance processes, benefitting multiple parties across its value chain. With participation of more members, greater impactful benefits will be realised by the trade ecosystem. As part of the Smart Nation journey, partnerships and the adoption of such innovations can help transform the banking and finance sector.”