Bank of America Merrill Lynch, HSBC and the Infocomm Development Authority of Singapore have teamed up to develop a prototype application that aims to improve the way businesses around the world trade with one another.

The app is based on blockchain technology - a digital ledger that allows users to make and verify transactions instantaneously on a network without a central authority.

It mirrors a letter of credit (LC) transaction by sharing information between exporters, importers and their respective banks on a privately-distributed ledger.

This enables them to execute a trade deal automatically through a series of digital smart contracts.

An LC is a guarantee provided by a bank that a seller will receive payment from a buyer once certain conditions are met - for example, once the seller can prove that the buyer's goods have been shipped.

Trade finance processes are typically time- and labour-intensive, with many documents and checks to cut risk and provide assurances to sellers, buyers and their banks.

"Letters of credit are an important part of the trade system, but they are based on 20th century technology, not 21st," said Mr Vivek Ramachandran, the global head of product for HSBC's trade finance business.

The app could streamline manual processing of import and export documentation, improve security by reducing errors, lift convenience and make companies' working capital more predictable. The consortium plans further testing of the app's commercial uses.