We can all agree that the pandemic’s effects on supply chains and geopolitics have created an atmosphere of unpredictability in the trade finance sector over the past few years. The prospects of trade finance, however, will be radically altered by three factors. Banks and corporations are already using blockchain technology for trade finance, but there is room for improvement, particularly in the area of digitizing paperwork and the bill of lading (BL). McKinsey estimates that implementing an e-bill of lading (eBL) system would reduce direct costs by $6.5 billion annually and open the door to $40 billion in additional international trade. When it comes to the future of the trade finance industry, collaborative effort between banks as well as fintechs will be essential as digitization continues to permeate the sector.
Fintechs play a crucial role in a bank’s digital transformation because they link the institution’s legacy infrastructure to new sources of information. Trade finance is another area where digital assets are gaining attention. The tokenization market is potentially worth a trillion dollars because it can be applied to anything of value. In this context, a token is a digital LC. Using distributed ledger technology (DLT) and smart contracts to make electronic trade assets, more trade finance processes could be digitized. Together, they could boost confidence in trade finance around the world, leading to significant expansion of that sector and thereby bolstering the industry’s overall resilience.
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