Trade finance and the entire supply chain industry are overdue for an upgrade, perhaps even a little disruptive unrest — anything to change the status quo and shove operations into the 21st Century with the rest of us. It’s a critical piece of the global economy, with trade finance revenue expected to balloon from $36 billion in 2016 to $44 billion in 2020, but inefficiencies are rampant, restrictive and in some cases even dangerous for human rights around the world.
One problem is the excessive use of paper and rubber stamps. Wait, what? Wasn’t all the paper thrown in the dustbin in the 90s when the internet started taking off? Not in trade finance. 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 cited cost control, limited technical competency, current technologies limitations and limited training and development as the other main weaknesses and concerns for the industry. These issues all result in exorbitant costs that restrict growth, long delays in a process that businesses need completed sooner rather than later and a lack of transparency that sees funding find its way into the hands of war criminals or those employee child labor.
So, how do we right all these wrongs? One of the reasons trade finance still employs so much paper is because nothing has proven to be an efficient alternative. Trade finance is all about managing trust and risk, neither of which are prevalent online these days. But blockchain offers a new way forward. Instead of leaving the supply chain industry gathering dust in a museum, blockchain can put it at the very cutting edge of technological development and give it all the associated benefits. And that’s exactly what Envoy is doing.
Envoy is harnessing the power of blockchain to upend the status quo in trade finance with an innovative marketplace that connects buyers, sellers and financiers and guides them through supply chain processes digitally while solving all of the most pressing needs of trade finance.
That’s because blockchain digitises and immutably assures documents like bills of lading, letters of credit, title papers, quality certificates and many more. Where once these had to exist in physical paper form, blockchain makes them digital and guarantees their authenticity with a higher degree accuracy than you and that old filing cabinet of yours. Now you can throw the paper in the dustbin.
Blockchain also speeds up trade financing and makes these financial processes transparent, giving financiers, investigators and regulators the ability to trace the flow of money and uncover the sources of funds for criminals and those whose business practices don’t meet standards required by the law. Blockchain is also expected to improve data management, improve risk management, streamline trade finance through automation and much more.
Envoy’s particular implementation of blockchain also opens up a whole new horizon of possibility and opportunity in trade finance. With Envoy, companies will find it easier to get the funding they need since multiple financiers can sign onto the same funding contract, thereby dividing risk between themselves. The time and resources freed by the process of digitalisation give all parties the chance to reassess priorities and invest in new avenues of growth.
This story of modernisation is common to every human endeavor and industry. The automobile made the horse obsolete and brought with it the economic boom of quicker travel; the internet reshaped the way we communicate and opened up new avenues of possibility through interconnectedness. Trade finance has just been waiting for the right technology to reshape its future, and now blockchain is here.
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