Breakthroughs on the Horizon

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Trade finance has long been ripe for digitisation, and electronic trade documents are already in use by some supply chain participants.

Blockchain technology has the potential to take digitisation to the next level by providing a shared, tamper-proof ledger of digital records.

Technologies being explored Hyperledger and Ethereum are the most common blockchain platforms being experimented with. Smart contract technologies are also being widely explored. This was no surprise, given Hyperledger’s association with IBM, and Ethereum’s widespread support among enterprise players. Both platforms support smart contracts.

Developments at HSBC and ING underpin the promise of blockchain technology for trade finance.

The banks participated in a live transaction that facilitated an electronic letter of credit covering a shipment of soybeans between Argentina and Malaysia. The trade finance application, based on R3’s Corda platform, processed the transaction in 24 hours, versus 5 to 10 days that it might normally take.

The Chain Business survey and research brief provides insights into how companies are pursuing the blockchain promise, with many respondents actively working with or planning to investigate the technology.

Level of Interest/Participation Nearly 45% of respondents are either planning or working on a proof-of concept or pilot project, or are already in live production.

Notably, several respondents are looking to expand the scale (and budgets) of blockchain projects for trade finance. Also, a number of them are working with several types of trade documents.

However, survey respondents point out that there are some serious hurdles to overcome, such as integrating blockchain-based solutions with other trade finance and accounts receivable/accounts payable (AR/AP) systems.

Encouragingly, the survey points to many initiatives to develop blockchain solutions for trade finance, with several being driven by a consortia of financial institutions.

The takeaway from an analysis of survey responses is that while blockchain has yet to prove its worth as a trade finance solution, the level of activity among those experimenting with it suggests that it is advancing rapidly.

Trade Documents in Play Most popular were the bill of lading and certificates of inspection and insurance. Letters of credit were often cited, followed by commercial invoices, certificates of origin and health certificates

About the survey
From December 2017 to February 2018, Chain Business Insights conducted a survey to find out how blockchain might be applied to trade finance applications. Participants were asked about their level of interest in blockchain as a trade finance solution, the projects they are working on, the primary advantages of the technology and the obstacles to adopting it.

Key Insights Gathered
This was a survey of 48 trade finance professionals representing companies of all sizes. Nearly one-third of respondents had annual revenues of less than $1 million, and one-third had more than $1 billion in annual revenues, with the remaining respondents in the middle tiers.

Respondents included banks/finance providers, insurers, shippers, freight forwarders, ocean carriers, third-party logistics providers, vendors and consultants who collectively operate in every region of the world.

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