How Blockchain Will Underpin the Future of Global Trade Finance

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I am moderating a panel today on the above subject and there is certainly a lot of noise and seed funding going on in trade. Why trade? It seems there are many reasons why this area is getting much attention:

  • I think the first reason that comes to mine is the amount of paper involved across custom agents, forwarders, ports, sellers, inspection agencies, insurers, banks, etc. One piece of paper in that long chain can certainly be a problem, and usually starts with Import Customs.
  • Settlement delays inhibit trade
  • Bank trade finance alternatives are costly

Blockchain applications around Global trade finance are being planned or piloted in a number of areas:

    • Global Receivables Marketplace – tokenize invoices that can not be duplicated and offered for sale on a marketplace, where payment to that invoice is tied programmatically to that asset.
    • Intercompany Money Transfer – Company integrates ERP to Blockchain to manage inter company money movement.
    • Smart Contracts- the ability for cascading POs, invoices, change orders, receipts, ship notifications, other trade-related documents and inventory data across a supply chain to move beyond basic matching to trigger threshold-based payments, replenishment, aggregation programs and more based on codified rules in a specific blockchain.
    • Electronic Letter of Credit - Blockchain is a more lightweight platform than what you might see with Bolero or Essdocs as it does not need the same overhead. Money moves the same way as it always has but contractual status is maintained on the blockchain.
    • Supply Chain and Payable Finance – Blockchain can enable multi-tier financing through the supply chain. Software can allow a bank to issue script, ie, IOU token, that can be transferred into the name of supplier and the supplier can redeem or he in turn can chain that token into his own supply chain.

But Distributed Ledger technologies are going to take awhile. Creating island solutions may prove to be beneficial for proof of concept around smart contracts, but we need a consensus around STANDARDS. It took SWIFT at least a decade to really scale as a communication standard. Why doesnt SWIFT just adopt Blockchain? I believe because its not a question of just speed, its service level agreements amongst banks, compliance rules, AML, KYC, etc.

In blockchain’s case, will the driver be Governments? The UK and Australian Governments are developing regulatory frameworks and establishing standards. That is good. What about corporate industry bodies? Will they help to drive standards around smart contracts? Many companies say it’s important only because it’s hard to ignore the hype. No one wants to be left behind. But what is the business problem we are solving?

Clearly we are still in the hype days and honeymoon period. But after the honeymoon, comes the reality. Where is the revenue? VC money behind many propositions looking for a quick payoff may find the reality is a cold shower.

I am currently at Distributed:Trade in St. Louis so if you happen to be here, say hello.

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