Blockchain influencing the growth of Trade Finance

Blockchain influencing the growth of Trade Finance

Trade Finance signifies financing for trade, and it relates to both domestic and international trade transactions. A trade transaction involves both a seller and a purchaser of goods and services. These transactions may facilitate through intermediaries, such as banks and financial institutions. The global Trade Finance market size was USD 63.540 Billion in 2019 and is estimated to hit USD 79.410 Billion by the end of 2026, with a CAGR of 3.2 percent in 2021-2026.

Trade finance involves providing letters of credit (LCs), receivables and invoice financing, credit agency, export financing, bank guarantees, insurance, and others. Buyers, sellers, manufacturers, importers, and exporters use it to ease financing activities and deal with the way cash, credit, investment, and other assets are used for trade. The key advantage of trade finance is that it accelerates the process of arranging short-term finance.

Valuates Reports recently published a report on the status, forecase, growth opportunities for trade finance.  The aims of the study are to present the growth of Trade Finance in North America, Europe, China, Japan, Southeast Asia, India, and Central & South America.

According to Valuates there are trends that are influencing the trade finance market size and key to them are developing technologies such as optical character recognition ( OCR) to read container numbers, radio frequency identification ( RFID) and quick response ( QR) codes to identify and track shipments, enhance the digitization of trading documents and in turn is expected to act as a catalyst for the growth of trading finance market size.

Other technologies include Blockchain, artificial intelligence (AI ), machine learning (ML), and the Internet of Things ( IoT) are being applied increasingly in commercial finance. AI and ML use natural language processing ( NLP), chatbots, and predictive analytics to address problems, recognize trends, foresee demand, and provide business recommendations. AI also helps to automate the process of trading documents and to ensure that electronic forms are delivered to stakeholders at the appropriate time during the trading process. Market vendors also integrate blockchain technology with trade finance to increase efficiency and simplify the invoice finance transaction from end to end. The integration of technology to improve the efficiency of the business financing cycle will be one of the main industry developments that will boost the trade finance market size.

According to the report, Blockchain in trade finance and credit insurance is an important way for corporations, insurance providers, governments, and other agencies to give credit insurance a significant diversification and transfer of risk within the financial and credit system. Blockchain and APIs allow trading ecosystems to implement and enhance data along the supply chain. This data will come from logistics companies offering clarity when goods have been picked up, transported, and distributed without violating contractual terms or electronic invoicing details from service providers. Adding new sources of data improves the transparency of real-time trade finance transactions, further integrating data from the physical and financial supply chain.

This allows the need for confidence to be minimized by reducing counterparty credit and performance risk, providing new trade finance solutions with new trigger points, and better overall customer services.

 

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