Current trade finance solutions are inefficient. Blockchain technology can help to reduce the cost of bureaucracy and speed up trade transactions. Learn more in this article!
Trade finance is an umbrella term for financial instruments that help to facilitate international trade transactions. The overall goal is to reduce the risk of a trade by aligning the different needs of importers and exporters.
The most common trade finance solution is a so-called Letter of Credit. When a company exports goods, the exporter’s bank will request such a letter from the importer’s bank. It is basically a payment guarantee, ensuring the exporter will receive his money upon shipment.
After the shipment has occurred, the exporter needs to present a document to provide evidence, for example, a bill of landing. The importer’s bank will then release the payment to the exporter’s bank.
Blockchain technology can reduce the inefficiencies of current trade finance solutions
Letters of Credit are effective in reducing the exporter’s risk of non-payment, but they are enormously inefficient. One single trade finance deal can require up to 36 original documents and 240 copies from 27 different parties, according to a study by GT Review.
The complexity of these transactions can result in waiting periods of weeks, sometimes months to complete one single shipment.
The use of blockchain technology could significantly speed up this process. On a blockchain-based network, all trade parties can interact with each other directly in a peer-to-peer system, without having to rely on intermediaries such as banks or trade brokers.
Importers and exporters can upload their documents directly onto the blockchain, where they are stored in an immutable fashion, protected from manipulation. All involved parties can view the documents in real-time.
Importers can deposit into an escrow account. The payment will automatically get released via a smart contract once all contract conditions have been met.
Increased transparency, security, and automation enable trade parties to settle transactions faster and at a lower cost. That’s part of what Export Portal does. We provide a blockchain-based trade portal, that allows importers and exporters to interact with each other directly, in a digital way. We reduce the hassle and cost of bureaucracy and increase transparency, security, and transaction speed.