Kittredge Carswell

Riding the blockchain wave in trade finance

Trade finance, whether conducted on a domestic or international basis, can be a paper-intensive, costly and risk-laden proposition, involving not just companies importing and exporting goods and services but also their banks, insurers and others. The trading process can be time-consuming, error prone, vulnerable to fraud and susceptible to hacking. It also can easily run afoul of constantly changing government regulations.

As trade banks continue to face these challenges, they also are pressed to digitally transform while meeting customer demands for consistent products across the bank’s footprint, seamless access to a wider range of products, and superior customer service.

Trade finance is ripe for innovation, and many observers believe that blockchain technology is the key to transforming global trade.

This rapidly emerging technology allows data to be agreed upon, stored and updated in near real time on a cryptographically secured distributed ledger. It also enables the data to be accessed transparently by numerous authorized participants. Instead of today’s long paper trails and slow verification and settlement processes, blockchain contracts can be digitized, shipments (and their condition) can be automatically tracked, and payments can be made and received instantaneously.

The use of blockchain technology is already producing compelling results. Working with a consortium of banks and a government agency in Singapore, CGI participated in the first ever trade finance blockchain proof of concept. Using blockchain technology, a use case was engineered to prevent duplicate financing of export invoices by different banks and to allow third parties, such as customs houses or shipping companies, to validate invoices against actual trade transactions.

The overlay of real-time information produced by the Internet of Things with supply chain finance promises to be another incredibly powerful application of blockchain technology. Being able to align product and service status information with trade finance information will automate myriad business and finance tasks. As a result, entirely new levels of productivity will be introduced to the trading equation, as well as improved quality and risk mitigation.

As these types of innovations become available, corporate-to-corporate finance supply chains will open up new windows of visibility into the transactions of trading partners. This visibility will be shared by numerous authorized parties, including regulators and auditors. Whether knowing more leads to a self-perpetuating cycle of regulating more remains to be seen.

Meanwhile, to advance a common understanding of blockchain challenges and benefits, CGI has been working with various industry groups, including the Bankers Association for Finance and Trade and the Euro Banking Association. The latter recently published a report on how crypto technologies like blockchain could provide big cost savings to banks in trade finance, payments and cash management.  Concerns about blockchain, still to be resolved, center on privacy, authority, scalability and performance.

Overall, there’s plenty of work to be done to apply blockchain to trade finance. CGI is committed to collaborating, exploring and commercializing innovative solutions in the trade space. For example, we’ve established a Trade Innovation Lab that encompasses numerous blockchain-related capabilities and provides a unique setting for building new applications or reusing legacy capabilities that interact with blockchain network solutions. This lab allows us to collaborate on blockchain project with banks and FinTechs, as well as partners. Initiatives can be accelerated from proofs of concept to full blown commercial implementations in as little as 12 to 24 months.

The blockchain wave is gaining marketplace strength and becoming a disruptive force. CGI is helping our clients take a proactive approach to shape and channel this transformative change rather than to be reshaped—or even rendered less than competitive—by it. Feel free to contact me for further discussion.

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