Time and again, bankers and other business officials worldwide have been pondering about the usefulness of blockchain in trade finance. At the outset, let’s take a brief look at the problems which exist within the trade finance industry. This would enable us to better understand the benefits of blockchain in this field.
The primary issue with the present state of the trade finance industry is its vulnerability towards fraudsters. Moreover, the need to process bulky paperwork and the intermediaries make the process sloppy and, at times, rather inefficient.
Recently, there’s been a rapid rise in the popularity of customer services like one-click checkout and e-KYC. In this context, it is high time that the trade finance industry is optimally digitized. In doing so, blockchain can be of significant help for the industry.
The Major Benefits of Blockchain
In this section, let us discuss some of the benefits of the blockchain and their potential impact on trade finance.
First, by doing away with the dependence on the “trusted intermediaries”, blockchain can significantly speed up the processing time. This will enhance the performance of the trade finance industry within the present pace-driven market.
Second, the removal of intermediaries would also make the system more transparent than it was before. Moreover, it will significantly bring down the risk of manipulations which have the potential to harm customers.
Third, the functioning of the industry would become smoother, owing to the elimination of a major share of the paperwork.
Fourth, as the processes are digitized, the overhead costs of businesses come down significantly.
Fifth, owing to the security features enabled by the blockchain, the business-customer and business-business bond of trust is strengthened. This is specifically essential for a capital oriented industry like trade finance.
Blockchain and the Increased Efficiency
Owing to the benefits stated above, a peer-to-peer network using blockchain is a very efficient way of undertaking financial transactions. Apart from other things, blockchain can play a major role in enhancing data transmissions within and beyond the business environments.
Any trade finance network which harps on the benefits of blockchain is bound to stand apart from others which don’t. As an instance for the same, one might look into the success story of Marco Polo. By adopting blockchain, they have substantially overcome the problems of a fragmented and somewhat disoriented trade finance industry.
A Vision for Future Businesses
In the days to come, the successful businesses would undoubtedly be the ones with an integrated work protocol. This would involve complete automation of customer services like e-KYC, as well as, customer support.
Moreover, the infrastructure of the future businesses has to have heightened transparency, enabled by the use of blockchain. This is especially true in the case of the B2B and B2C financial transactions facilitated by the organization.
In order to strengthen the trust, businesses would have to work with “smart contracts”. As we know it now, these contracts are a primary beneficial outcome of the blockchain technology.
Moreover, these contracts can hasten up the financial processes by automatically initiating transactions based on pre-defined criteria. This way, all the involved parties know that their finances are secure and certain.
Most importantly, once the terms of business are agreed upon, neither of the parties can alter the same. This is ruling out the possibility of misinterpretation and manipulations.
Blockchain and Enhanced Authenticity
Authenticity in the trade finance industry is way more crucial than it is in other industries. Any information stored on a blockchain is indelible and is linked to one another to form a chain. Consequently, the blockchain makes it very easy to trace back a series of transactions in relation to one another.
Moreover, the unique cryptographic encryption of the data ensures the validity of its ownership. Any new information added to a blockchain goes through a pre-defined and automated validity screening which allows for easier verifications. This also ensures that the information is not changed in the process, which is crucial in terms of financial interactions.
As the entirety of financial transactions can be accessed from a single point, a business’s authenticity is firmly established. Plus, issues like delay in transactions and the need for data-sharing is eliminated by the successful application of blockchain.
In all, blockchain is a technology which could significantly change the way businesses work at present. Especially for the trade finance industry, the prospects offered by blockchain could pave the way to a brighter future.