Blockchain technology was first developed for bitcoin, in which it serves as the public ledger for transactions.

Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore are going to shift to blockchain technology from paper trails in global trade with a prototype, the organizations said on Wednesday in separate statements. The Hyperledger Project blockchains will be based on Linux Foundation open source which is supported by both IBM Research and IBM Global Business Services.

The application is a digital version of the paper-based Letter of Credit transactions, which shares information among exporters, importers and their respective banks on a private distributed ledger. The LC is a permit to execute a trade deal automatically in a series of digital smart contacts, according to a statement.

The proof of concept is able to streamline the manual paper-trail of import-export documentation, reduce errors to improve security, make transactions more convenient with mobile interaction and increase the predictability of the working capital of companies.

The consortium is planning on testing the system further with selected corporate and shipping partners.

“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 digitizing trade transactions, potentially resulting in considerable benefits to the supply chain process.” Bank of America Merrill Lynchm head of global transaction services Ather Williams said.

According to Vivek Ramachandran, global head of product for HSBC’s trade finance business, “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.”

According to Khoong Hock Yun, assistant chief executive of IDA Singapore’s Development Group, letters of Credit processed through a blockchain makes the process more efficient and visible in the trade/finance processes, which can benefit all parties in the value chain. As the members grow, the benefits will have a greater impact in the “trade ecosystem” as partnerships and adoption of these technological innovations, such as the Smart Nation project, will help change both the banking and finance sectors.

With trade and financial services loaded with processes that are time and labor intensive, the multiple documents and checks that reduce risk and give assurance to sellers, buyers and banks are necessary. The LC, or Documentary Credit, is one of the most important documents from the bank that guarantees that the seller will receive payment from the buyer after conditions are met.

The process, once digitized, will enable all the participants in an LC transaction to be able to visualize data in real time and see the succeeding actions. Each action is showed in a permission ledger, which gives greater transparency to the exporter, importer and both of their banks, and at the same time, encrypts confidential data.