Importers, exporters, banks, syndicates, trade finance houses, export credit agencies, insurers and many others have a huge stake in the business of trade finance. It drives global trade by mitigating both payment risks from importers and supply risks from exporters while providing the exporter with accelerated receivables and the importer with extended credit.
The concept behind trade finance has proved to be crucial to the health of the global economy and figures from the market prove its ongoing and even increasing relevance. Long-term growth CAGR is expected at 3.77% from 2016–2020 and global revenue from trade finance is expected to increase at 4.7% annually from $36 billion in 2016 to $44 billion in 2020.
But these numbers are somewhat deceptive in-and-of-themselves when considering the overall state of this critical market.
Trade finance relies too heavily on non-digital practices to keep up with an ever-more technological, fast-paced economy. Reams of paper and giant rubber stamps are still the main mode of completing transactions, which can cause costly delays and financial loss. JP Morgan claims that the Fortune 500 spend no less than $81 billion annually on unnecessary working capital and supply chain costs due to trade finance activities requiring about 36 original documents, 240 copies and the involvement of 27 entities.
An ICC survey showed that the main weaknesses that trade finance faces today are cost control, limited technical competency, current technologies limitations, limited training and development. That means that besides being paper heavy, trade finance has also become very fragmented and labour intensive — not a good direction for any industry to be headed.
Introducing decentralised ledger technology changes all that, and that’s exactly what Envoy in implementing. By utilising blockchain technology, Envoy digitises and immutably assures traditionally paper-intensive processes, including documents like bills of lading, letters of credit, title papers, quality certificates and many more. Trade finance banks embrace blockchain technology because it provides increased transparency and visibility on what they are financing while reducing regulatory and reputational risks.
In a nutshell, blockchain eliminates nearly all of the pain points in the trade financing of today.
The inclusion of Envoy and blockchain technology into trade financing is expected to improve data management, allow for greater transparency, improve risk management, increase speed of digitalisation and streamline processes through automation.
The benefits of blockchain and Envoy’s model inject the trade finance industry with a dose of desperately-needed modernity. What can’t blockchain do?
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