Blockchain Technology For Trade Finance: Future of Digital Trade

Jul 07, 2022 - 05:38 PMAuthor - Emerio Banque


The International Chamber of Commerce's 2020 worldwide commerce Survey indicates that commerce and trade financing are experiencing worldwide insecurity, in part because of COVID-19. While the pandemic-related decreases in trade flows and revenues concerned many banks questioned, the survey also revealed that lockdowns and working from home are hastening the migration to digital trade solutions, including blockchain.

The trade finance industry needs to transition to digitalization now more than ever, especially in the post-pandemic era when commerce had only recently experienced a huge economic shock. International trading partners are looking for a reliable, efficient, and rapid way to handle trade data in combination with banks and other financial organizations.

Financial experts assert that this can only be accomplished by digitizing trade finance and doing away with the outdated paper-based processes currently in use. Second, following the pandemic disruption, supply chain finance needs to be brought back to a stable level.

The resulting blockchain-based trade network is intended to enhance the process of trade finance lending, assisting banks in accessing new markets with new products, while lowering risk and expediting cross-border trade for buyers and sellers as they extend their businesses into new nations.

In fact, Blockchain Is Changing the Game

When will trade finance services begin utilizing blockchain technology? How soon will blockchain be used in trade transactions is arguably the most often requested question among trade partners at various trade-related conferences.

Cross-border trade still entails a number of paper-based transactions that convey various information, such as the nation of origin, specifics about the goods, or the amount of transactions made under an LC, SBLC, BG, etc. It produces more documentation overall. Distributed ledger technologies (DLTs), such as blockchain, can be viewed as a game-changer since they leverage a decentralized network to let users start transactions even in the absence of a reliable, legitimate central authority.

With the use of distributed ledger technology, information may move securely and openly between banks, trading firms, and other network members like insurance companies. On the blockchain, each transaction is permanently recorded with a timestamp and a cryptographic signature. For complete transparency, which is useful in boosting confidence and refraining from fraud, everybody with the appropriate permission can view the appropriate or identical information.

How banks and traders collaborate to conduct business, as well as how risk and dispute management are defined, are all outlined in a self-governing rulebook. The commercial and shipping parameters of an agreement between parties are codified in smart contracts. The smart contracts provide notifications for payment when predetermined conditions are satisfied, including the transportation of products.

Companies can apply online for bank-guaranteed payment or invoice finance using a straightforward user interface. Transactions are made simpler and less expensive for all parties because of the entirely digital procedure.

Trade finance is still a very manual and paper-based industry, but blockchain has a big potential to transform everything. By connecting them over a decentralized network, it is only offering a technology platform that enables parties to the trade to handle trade data swiftly, efficiently, and safely.

For instance, Contour recently introduced digital letters of credit services, allowing each trade participant to obtain a copy of the identical information in digital form, but preventing them from making any modifications without the agreement of the other parties involved.

Simply said, it speeds up the trading process because all parties can easily access the instruments in a secure and transparent manner. As opposed to conventional paper-based trading transactions, which open and exchange between the parties take weeks.

Read our blogBlockchain Transformed Technology

Blockchain technology makes it simple and highly secure for international merchants to work together and start a transaction within banks. Through the DLT, we can increase supply chain transparency, do away with the danger of fraud, reduce prices, and shorten turnaround times.

This infrastructure for trade finance is reproducible and extendable. We already established it for our current clients, so we can rapidly build it again for new groups of banks and cooperating businesses. Assets can be tailored for your specific business relationships and possible participants, such as terms and conditions, codified procedures, user interface templates, and APIs for interfacing with current systems of record.

The platform can also be expanded. If you're interested in learning more about how blockchain technology may help the trade sector, check out our blog:  Technology Was Transformed by Blockchain 

Blockchain advantages:

Decentralized contract execution: As contract conditions are completed, status is updated in real-time on Blockchain, cutting down on the amount of time and personnel needed to supervise the delivery of commodities.

Disintermediation: Banks using blockchain technology to facilitate trade finance do not need a reliable intermediary to bear risk, therefore correspondent banks are no longer necessary.

Factoring that is transparent: Blockchain-based invoices give users a real-time, transparent glimpse of upcoming short-term financing.

Reduced transaction fees and automated settlement: Contract terms carried out using smart contracts do not require correspondent banks or additional transaction fees.

Real-time approval: By linking and making financial papers accessible through Blockchain, real-time approval speeds up the process of starting a shipment.

Regulatory transparency: To help with enforcement and AML actions, regulators are given real-time visibility of key documents.

What Will Happen Next?

Making blockchain technology available to as many market participants as possible will be essential for its successful integration and for accelerating the digitization of international trade financing. A few deals are spurring changes, and numerous firms are eager to use this technology to speed up their trade financing procedures.


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