Much of the infrastructure of trade finance has not changed for many years and still continues to trade using older outdated methods of technology.
As we are now suitably entrenched in the 21st century with many new innovations, the more clunky older and more expensive ways of trading are weighed down with bureaucracy and are ready for some significant time and investment.
Many of the current trade finance processes are lengthy and time-consuming, such as those which are concerned with cross border payments and other settlements. In order to keep up with other methods of commerce, trade finance is looking to find new ways of working …and an update.
Trade finance is currently full of inefficiencies and with today’s fraud being cleverer than ever, they are now extremely vulnerable to fraud. Paper processes are in urgent need of an upgrade and need to be replaced with digital systems. Blockchain may help this transition.
With the introduction of blockchain technology, many financial institutions are now wondering how it would influence the trade finance sector. according to experts, Blockchain can reduce processing time, eliminate the use of paper and save money – while ensuring the important elements of total transparency, trust, and security.
Now that we have seen which areas blockchain technology can assist the world of trade finance, let us look below at some of the organizations that are trialing, researching, and implementing this new technology.
Who is using Blockchain?
Many of the bigger players are institutions are looking at blockchain’s potential for trade finance, including Deloitte, whose Smart Identity Platform is set to digitally alter the way that customers and businesses manage their identity and how they transact with each other.
Deloitte is not the only organization to be looking to the benefits blockchain can bring to the world of trade finance. During 2018, the World Trade Organization published a 160-page report on the potential of blockchain to revolutionize international trade. These experts outline their thoughts concerning blockchain below:
“If we succeed in creating an ecosystem conducive to the wider development of Blockchain, international trade could well look radically different in 10 to 15 years.”
Now we’ve seen how the benefits of blockchain in trade finance is being researched and implanted, let’s take a look below at the some of the main advantages that this kind of technology will have on future trade.
- Instant verification and reconciliation of records.
- Contracts can be fulfilled automatically through the use of smart contract technology.
- invoice asset disputes will be eradicated
- Blockchain allows rapid credit risk assessments as each transaction is immutable
- Banks are no longer required to assume credit risk.
- Minimal human error with document checks.
- Low-cost, instant, and secure data exchange.
- Limited counterparty risk
Trade finance is one of the major industries that play a huge role in our economy and by using new innovative technology, this can help to make our world of finance fully united.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.