Trade Finance, where financial institutions render finances for executing deals between both domestic and international traders, is a centuries-old sector that hasn’t witnessed much change amid the rising global trade flows. In the current scenario, antiquated processes hobble businesses in trade finance resulting in higher costs and more risks. This is where Blockchain technology comes into the picture. The application of Blockchain in trade finance has garnered the eyeballs of various crypto traders over the past few years.
Barclays and Wave were the first two organizations that executed global trade transactions using Blockchain technology. According to a research paper published by World Trade Organization, Blockchain is one of the biggest disruptors of the shipping industry and international trade. In addition to addressing the traditional flaws, Blockchain promised to be an ideal technology for transforming the trade finance industry through its decentralized and immutable attributes.
This blog sheds light on how traders can effectively use the Blockchain for trade finance. Before moving further, let’s discuss some crucial pain points of trade financing in today’s era.
The below-listed are some crucial pain points of traditional trade finance:
Delayed Transfers
Multiple checks performed by intermediaries at numerous communication points are one of the primary reasons for the delay in transactions and shipment of goods.
Manual Contract Verification
The importing bank manually reviews and verifies financial agreements shared by the importer and transfers details to the correspondent bank.
Duplicative Bills of Lading
A bill of lading, also called a contract of carriage, is financed multiple times due to the inability of banking institutions to verify its authenticity.
Invoice Factoring
Exporters use unpaid invoices in order to achieve short-term financing which adds additional risks in case the delivery of goods fails.
Lack of Security
The propensity of fraud and miscommunication is very high since traders across countries operate on different platforms.
The following are some benefits of utilizing Blockchain in trade finance:
Real-Time Tracking
Any kind of financial documents accessible and linked to Blockchain are approved and reviewed in real-time which reduces the time of shipment initiation.
Transparent Factoring
Unpaid invoices accessed on a Blockchain network provide a transparent and real-time view of subsequent short-term financing.
Intermediaries Elimination
Businesses that use Blockchain-based solutions don’t need trusted intermediaries which eliminate the need for correspondent banks.
Reduced Counterfeiting
Utilizing Blockchain in trade finance helps in anti-counterfeiting and builds trust. The potential of double spending would eliminate as bills of lading will be tracked through Blockchain.
Low Transaction Fees
The terms of contracts executed via smart contracts not only eliminate the need for correspondent banks but also reduces transaction fees.
Decentralized Contract Execution
Whenever contract conditions are met, the status is updated on the Blockchain network which reduces the headcount required to track and monitor the delivery of goods.
Here are the top 3 case studies of Blockchain in trade finance:
At EuroFinance 2017, Simon Taylor, the former vice president at Barclays, informed delegates about how Barclays provided a Blockchain-based solution to Ornua, an Irish agriculture cooperative, in the form of a letter of credit transaction.
Sompo and Marubeni Corporation
Sompo holdings, a Japan-based insurance company, and Maubeni Corporation were involved in a trade transaction between Japan and Australia executed using distributed ledger technology in July 2017.
Maersk and IBM
Maersk, a shipping company in Denmark, and IBM teamed up in March 2017 to use Blockchain technology to transform global, cross-border supply chain operations.
To conclude, utilizing Blockchain in trade finance will help businesses build new trading partnerships, create advanced business models, and uncover new liquidity pools. Currently, innovative Blockchain development companies are trying their best to energize traditional players by transforming their offerings. One such Blockchain development company is Antier.
Antier has already realized how businesses in trade finance can leverage Blockchain-based solutions to reduce operational costs, drive efficiencies, and open up new revenue opportunities. So, the company has been providing its worldwide clientele with the best Blockchain-powered solutions over the past couple of years to help them streamline their trade flow.
Antier holds a proven track record of delivering countless Blockchain-based solutions to businesses in the FinTech industry. In addition to that, the company has been listed among the top Blockchain development firms of the world by research and review agencies such as Clutch and GoodFirms.
By partnering with Antier, you can rely on a team of experienced Blockchain developers and technical experts with real-world experience delivering end-to-end solutions. Get in touch with our experts today to get your Blockchain solution developed as per your business requirements.
Please fill out the form to make the request. We’ll be in touch to schedule a free demo.
