Jeff Blumenfeld, Executive Vice President at MonetaGo, discusses about how technology can improve trade flow and finance.
Michael Gove’s recent acknowledgement that Britain’s departure from the EU will ‘mark the end of frictionless trade’ comes as no surprise, given the step into the unknown Brexit presents for businesses accustomed to smooth cross-border trade flow. A new trading relationship comes with new challenges in operational practices, as well as financing of trades. It is here that trade finance technology can hold the key to smoothing trade flow, not just between the UK and Europe, but across the world.
Trade finance oils the wheels of global trade to drive economic growth and as such, it would be expected that the industry has seen a great deal of technological improvement to accommodate this. However, it remains a largely paper-based process. Because of this, the trade finance sector is hugely underserved, with the gap being estimated at US$1.5tn. The costs associated with paper-based processes will only rise with increased border friction, and there is now a stronger need than ever to improve trade finance to ease forthcoming trade disruptions.
In some places, this change is already apparent. Digitised Letters of Credit, for example, can help facilitate elements of efficient trade. However, there is still much work to be done. Here, blockchain technology presents a fresh opportunity to add value to trade finance, not only smoothing the flow of trade, but also reducing the risk of fraud.
The real cost of inefficient trading
Receivables financing is a particular area of trade finance that already benefits from enhanced technology in some jurisdictions. By checking if invoices have already been financed and verified against tax and shipping information, blockchain networks can enable banks to create non-reversible fingerprints of an invoice, then publish them to a shared network. These fingerprints enable complete privacy over invoice details. Once fingerprinted, banks can then apply different states to the invoice, such as whether it has been registered or financed. This is what MonetaGo does.
In a time of unprecedented uncertainty for financial institutions – banks included – trade finance can be one area of cohesion to bring Britain and the EU closer together.
Trust above all else
Trust is a key part of how companies trade with each other and with new or different relationships being established between nations due to new trading channels, corporates need to ensure they are dealing with a reliable company that can ensure payment. Blockchain technology networks can allow certainty between trade partners, and in doing so, encourage international trading to function regardless of variations in regulation or laws. Choosing solutions which offer robust privacy measures that are fit for business usage ensures both privacy and cooperation are brought to international trade.
The benefits blockchain technology offers extends to all areas of trade finance. It remains a hugely underserved sector. With a future of increased friction in trade lying ahead for many businesses, now is a better time than ever to seize the opportunity for this sector to address the friction that Brexit will bring and to bridging the existing gaps in trade finance.