If you’re not familiar with blockchain, it’s essentially an open ledger that records transactions. Many people think of it as the underlying technology behind bitcoin, but the concept itself can be used in many other industries to make transactions safer and more secure. Blockchain in trade finance allows businesses to issue virtual letters of credit and create smart contracts, among other things, that can make working capital more accessible to SMEs and manufacturers around the world while also improving transparency and traceability of goods as they move through the supply chain. Here are some of the most significant benefits of blockchain in trade finance today.
1) Accurate Delivery Status Information
One way how is blockchain used in finance is for accurate delivery status information. When a container leaves the port, all the relevant data about the journey is entered into the blockchain. This could include location, speed, temperature, and more. This data is then verified by each node on the network, which creates an immutable record of the journey. This means that if there are any delays or issues with the shipment, all stakeholders can see exactly what happened and when. As a result, this can help to improve communication and coordination between parties, as well as increasing transparency and trust. Some companies have already started using these types of records to improve their supply chain process.
2) Reduction in Shipping Costs
What is the role of blockchain in finance? A number of startups are using blockchain to reduce the cost of shipping. By digitizing the supply chain and automating the process, they can save on paper costs, fuel, and time. In some cases, this can lead to a 30% reduction in shipping costs. Blockchain for trade finance cuts out the need for paperwork which reduces processing times by up to 50%. It also makes it easier for banks to verify information without third-party verification which saves money. The only downside is that companies need more employees with digital skills. What is the role of blockchain in trade finance? Blockchain is a shared ledger system where every party can access the same data. Once all parties agree to changes made on one copy of the ledger, all copies update automatically with those changes.
3) Faster Payments
How is blockchain used in finance? One way is through faster payments. With blockchain, both buyers and sellers can see the status of a transaction in real-time, which speeds up the payment process. And because there’s no need for intermediaries, payments can be made almost instantly. Furthermore, thanks to new technologies like cryptocurrencies like Bitcoin, transactions are cheaper than ever before – potentially as low as $0.001 per transfer – making them fast and cost-effective for all parties involved. Greater Security: In trade finance transactions today, it’s not uncommon for goods to go missing or for fraud to occur during shipment. However, with blockchain’s distributed ledger system that securely records every single detail about a transaction (including proof of delivery), risk is significantly reduced or eliminated altogether. Easier Transactions: A major drawback in trade finance today is lack of interoperability between systems due to incompatible technologies and varied formats. With blockchain, these issues are solved by leveraging digital ledgers that allow easy tracking and management of assets throughout their entire lifecycle.
4) Easier Refunds & Returns
1. With blockchain, trade finance transactions are recorded chronologically and transparently. This makes it easy to track the status of a shipment and identify any issues that may arise.
2. If there is a problem with a shipment, blockchain can help facilitate refunds and returns by providing an immutable record of the transaction. This can help streamline the process for both buyers and sellers.
3. By reducing the need for paper documentation, blockchain can also help reduce the risk of fraud in trade finance transactions.
4. Blockchain can also help expedite payments, which can be a big benefit for small businesses that rely on trade finance to keep their operations running smoothly.
5. Another benefit of blockchain is that it enables smart contracts. These contracts are coded into the blockchain system, ensuring that all terms of the contract will be followed through.
6. For example, if you’re lending money or buying shares from someone else using a smart contract, the terms of the agreement will automatically come into effect once those conditions have been met—without requiring any human intervention.
5) Improved Asset Tracking
How is blockchain used in finance? In a world where trust is essential for financial transactions, blockchain provides a distributed ledger that can be used to record and track all types of data. This allows all parties to see the same information, which leads to increased transparency and trust. The elimination of intermediaries reduces transaction costs by eliminating redundancies and expensive processes. Smart contracts allow for trade deals to be signed electronically with much more security than paper contracts, decreasing the possibility of fraud or lost documents. Companies are using blockchain technology to improve their business operations.
-Improved Trust: As mentioned above, by removing intermediaries and consolidating data onto one platform, there is improved transparency and trust between all parties involved in a transaction.
-Decreased Transaction Costs: By removing redundant processes, blockchain can save organizations significant amounts of money on operational expenses like transportation costs, insurance fees and storage fees.
6) Smoother & Speedier Customs Clearance
The traditional way of processing international trade documentation is through paper. This is a time-consuming and often error-prone process, as each document must be physically transported to the relevant parties for approval. With blockchain, documents can be digitally stored and shared instantaneously, which can speed up customs clearance significantly. As such, this eliminates issues like misplaced paperwork and lost shipments. Additionally, blockchain technology offers end-to-end visibility into the transaction at all times. So even if there are problems with paperwork or shipment delivery, they will be easily traceable and could be quickly resolved.
7) Increased Trust
In the trade finance industry, one of the main issues is trust. Lack of trust often leads to delays in payments, which can be costly for businesses. With blockchain, there is a digital record of all transactions that can be verified by all parties involved. This transparency and immutability can help build trust between buyers and sellers, leading to faster payments and reduced costs. It also offers an excellent audit trail for compliance requirements. There is no need to rely on paper-based records that may be subject to alteration or falsification.