Blockchain Could Maximize its Potential in the Industry of Trade Finance
A large number of companies, banks, financial institutions,
Blockchain consortia and even governments have focused on testing Blockchain technology’s potential in the industry of trade finance. Most notably, the Hong Kong monetary authority introduced the development of a Blockchain-based trade finance platform in March. Additionally, IBM announced its long-term strategy to focus its Blockchain development initiative on trade finance.
What is trade finance and why does it need Blockchain?
Trade finance refers to the financing for trade and it always involves a wide range of intermediaries, banks, and third-party services providers that are contracted to facilitate transactions and finance the trade. The most widely utilized method of payment within the industry of trade finance is an open account, in which business partners have their accounts with correspondent banks open for the processing multiple transactions.
Essentially, the aim of banks and companies that are currently utilizing the Blockchain to optimize trade finance operations is to replace traditional and inefficient financial networks with a smart contract-based protocol which can process, update and broadcast transactions in real-time. With Blockchain technology and its ability to secure transactions on a decentralized and immutable ledger, governments and companies are attempting to replace banks and intermediaries with a trustless financial network. Banks are also attempting to develop trade finance platforms based on the Blockchain to cut operating costs and manual verification time.
Joshua Kroeker, the senior product manager for global trade and receivables finance at HSBC, stated:
“As the largest trade finance bank in the world … we were interested in assisting corporates to track transaction flows, reconcile transactions through invoice or purchase order matching and reducing the risk of duplicate financing for the participating banks. This development puts Hong Kong at the heart of a global effort to digitize trade, making it easier, faster and cheaper for businesses.”
More Blockchain use cases
On February 7, the government of Dubai went as far to launch an actual pilot trade finance platform based on the Blockchain with IBM to streamline operations between banks and optimize various operations involved in the trade finance industry.
At the time, Ali Sajwani, group chief information officer for Emirates NBD Group, said:
“The bank has always had a culture of innovation and several of the bank’s most successful products and features can be attributed to this forward-thinking mindset. We are excited to participate in the ecosystem on streamlining the trade finance process using the futuristic Blockchain technology, which has the potential of transforming the way we conduct business between heterogeneous entities.”
At a recent event covered by Global Trade Review, Zach Piester, chief development officer of the Blockchain consultancy Intrepid Ventures, and Connie Leung, financial services industry director at Microsoft, reaffirmed the progress being made by organizations in implementing Blockchain technology on existing trade finance platforms. Leung of Microsoft further emphasized the increasing demand for Blockchain technology to fight financial fraud within the industry of trade finance.
Alan Zibluk Markethive Founding Member