Blockchain technology reshaping the trade finance processes

Popularity of Blockchain technology has increased progressively over the last few years. Blockchain had made disruption in various industries, global trade finance is one of them.

When we talk about domestic and international financial transactions, trade finance comes into the picture. Trade finance includes a letter of credit, factoring, lending, export credit and insurance. Whenever goods and services are purchased across the border, some kind of trade is initiated. Handling huge chunks of paper documents for information flow is one of the major issues banks are facing, they want to replace the whole ecosystem with the help of digitization.

Credit: https://www.zuehlke.com/blog/en/how-the-blockchain-can-disrupt-trade-finance/

Traditional Trade Finance Process

As per current process, let’s say, a company in Poland seeks to import the goods from India, in such scenario, the buyer is hesitant to pay the money before receiving the goods and seller is hesitant to ship the goods before getting the assurance for payment. A solution to this problem is to issue a letter of credit by importer’s bank with the help of exporter’s bank to assure the payment once goods are loaded to shipment. This process is running for years with substantial paperwork and lengthy work.

Blockchain in Trade Finance

The blockchain is a data structure which keeps the records of all transactions in a decentralized ledger, with the help of cryptography. This process removes the need of central authority, and each participant in the network can securely amend the transaction in the ledger.

Trade finance is becoming one of the focus points for blockchain based companies. Various trial and pilot launch are happening to explore the opportunities in the blockchain field. The stand-alone solution will not suffice the complexity of trade finance supply chain functionalities. There are numerous IT companies who are developing the robust solutions for trade finance operation with the help of blockchain technology. Envoy is one of the companies who has the potential to cater to all the functionalities and complex processes of trade finance. In other words, Envoy is building the future of trade finance with the help of blockchain. Their solution will be built with the help of ERC 20 utility token for transactions and R3 Corda for settlement and recording thes invoices. Moreover, this will also eradicate the lengthy process and it will free up the funds that are locked in transit which are normally lasts for months, this frees up funds form the trillions of dollars in transit in trades. Underneath are the key features of Envoy solution:

  1. Direct transactions with Corda to remove the cost of complex system agreement
  2. Securing the data using Corda consensus services.
  3. Seamless integration with Oracle and SQL database.
  4. Unlock the full potential of trade finance functionalities.
  5. Scalability to work with cloud services.

Trade finance is a complex network system of banks, where multiple parties are involved who are sitting across the globe. Trade finance blockchain ecosystem, which combines all the process, is required so that a common standard is used for interoperability.

To summarize, we are still far from executing self-executing chains in trade finance, but we shall see the various companies integration of blockchain with legacy systems.