Blockchain technology has found its big utility in trade and finance and there have been a substantial increase in the number of trials. However many pilots and trials have failed also. There is an increased awareness among parties and certain well-known names have come up in this blockchain in trade & finance.
As on date, the trade finance has bottlenecks and factors such as–
- Manual contract documentation
The bank manually reviews the financial agreement provided by the importer and sends financials to the correspondent bank
- Invoice factoring
Exporters use invoices to achieve short-term financing from multiple banks, adding additional risk in the event the delivery of goods fails
- Delayed deliveries
The shipment of goods is delayed due to multiple checks by intermediaries and numerous communication points
- Manual review
The export bank must manually conduct AML checks using the financials provided by the import bank
Since each party across countries operates on different platforms, miscommunication is common and the propensity for fraud is high
- Duplicative bills
Bills of lading are financed multiple times due to the inability of banks to verify their authenticity
- Multiple versions
As financials are sent from one entity to another, significant version control challenges exist as changes are made
- Delayed payment
Multiple intermediaries must verify that funds have been delivered to the importer as agreed prior to the disbursement of payments to the exporting bank.
Advantages of Blockchain technology
In view of the factors listed above, it has been found the blockchain in trade finance brings about following added advantages-
Review and appraisal in real lime
Financial documents linked and accessible through Blockchain are reviewed and approved in real time, reducing the time it takes to initiate shipment.All bills and invoices are easily accessible on the blockchain giving real time transparent viewing
Removal of intermediaries
Banks facilitating trade finance through Blockchain do not require a trusted intermediary to assume risk, eliminating the need for correspondent banks financial institutions and banks which are in trade and finances through blockchain do not require intermediaries resulting in faster transactions
Elimination of double spending
Bills of lading are tracked through Blockchain and are thus eliminating the problem for double spending All invoices and bills which are being tracked through blockchain remove the requirement of double spending.
Simpler contract execution
In view of contract terms being established and met the final status is there on the blockchain in real-time. This results in a
Authentication of ownership
The blockchain provides the clarity of the location and ownership of the items as it is well established.The title available within Blockchain provides this transparency .
Settlement and fee reduction
As there is the removal of intermediaries there is substantial reduction in fee. All contract terms executed through Smart Contract remove the need for correspondent banks and added transaction feesRegulators are provided with a real-time view of essential documents to assist in enforcement and AML activities
It is hereby seen that with the introduction of blockchain the business clarity and hurdles have been removed, there is authentication of ownership, simpler contract execution, review and appraisal in real time etc