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(Adds tech firm trade finance platform development)
LONDON/HONG KONG, Aug 10 (Reuters) - An HSBC and Bank of America Merrill Lynch venture andfinancial technology firm R3 said separately on Wednesday thatthey had created ways of using blockchain technology to simplifytrade finance processes.
The two banks said they had joined with the InfocommDevelopment Authority of Singapore to emulate a letter of credit(LOC) transaction. Letters of credit are one of the most widelyused ways to reduce risk between importers and exporters,helping guarantee more than $2 trillion worth of transactions,but the process creates a large paper trail and is timeconsuming.
Meanwhile, R3 said more than 15 of its consortium memberbanks have also designed self-executing transaction agreements,known as smart contracts, on R3's distributed ledger platform toprocess accounts receivable purchase transactions, known asinvoice financing or factoring, and LOC transactions.
By putting the transaction on a distributed ledger, theimporter and its bank, together with the exporter and its ownbank, can see the data in real time.
Financial services companies around the world have beenfocusing on developing blockchain technology, with advocatessaying it has the potential to save billions of dollars in costsand speed up transaction times. The technology, which underpinsthe digital currency bitcoin, creates a shareddatabase in which participants can trace every transaction.
Discussions are underway with other banks, corporate clientsand shipping companies to further develop the technology, whichis in its early stages, said Vivek Ramachandran, global head ofproduct for HSBC's trade finance business. (Reporting by Elzio Barreto; Editing by Alexander Smith andLouise Heavens)
