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As the coronavirus pandemic continues to push more people out of their offices, many companies around the world are adopting decentralized ledger technology to mitigate its effects and stay operational.
Emmanuelle Ganne, senior analyst at the World Trade Organization, told Cointelegraph that “The current pandemic, which has a devastating impact on small businesses, is an opportunity to accelerate the digitization of commerce, particularly to the benefit of SMEs “. Ganne added: “DLTs have the potential to remove many of the inefficiencies that hinder international trade and to cut trade costs, which weigh more on small businesses, even more so in times of crisis.”
Deepesh Patel, editorial director of Trade Finance Global, a financial broker, believes that “A fully digitized global trading ecosystem will be fluid, interconnected and likely open source.”
The commercial finance gap
As the global economy continues to be shaken by the pandemic, it is clear that the most affected businesses are small and medium-sized businesses facing the “trade finance gap,” which is a deficit that prevents businesses from functioning due to a lack of adequate financing necessary for the conduct of operations.
What’s deeper is the fact that the trade finance gap was estimated at $ 1.5 trillion US dollars before the COVID-19 pandemic, and that number is expected to rise to around $ 3 trillion or $ 4 trillion. Göran Almgren, CEO of Enigio – a DLT solutions provider – told Cointelegraph: “The reason for the huge funding gap is that it is considered too expensive (and too risky) to finance SMEs, especially in emerging markets.”
The pandemic makes matters even worse, as more investors are holding onto funding due to economic uncertainty. However, DLT appears to be drastically mitigating these risks thanks to its ability to reduce fraud and cut the costs of financing and operating assets.
The current state of adoption of the DLT
A recent study published by Trade Finance Global and the WTO shows that the pandemic has not only triggered further overall adoption of DLT, but has also triggered greater implementation of DLT platforms, especially in the world of commerce and finance.
Although DLT only started increasing in popularity after the advent of the Bitcoin blockchain, the concept has actually been around for some time and goes beyond the blockchain, which is a more recent development in the technology. Essentially, a DLT is a decentralized network of computers with a common consensus protocol that allows for seamless communication without a central entity. DLT makes it possible to achieve immutability, security, dynamism and decentralization on digital networks.
Commercial finance options
The financing of both traditional and internal trade requires great transparency and efficiency. Given the ubiquity of financial institutions that embrace DLT for its accounting efficiency, the commercial finance sector seems better suited to take advantage of it.
Side dish
Contour is a major player in the industry, providing a platform that enables the creation, exchange, issuance and approval of letters of credit. Contour’s DLT platform, Corda, is set up to allow attendees to host their own nodes on the network, co-write letter of credit applications, and issue and edit these letters, all in a complete end-to-end workflow . The platform is also designed to enable self resolution and settlement of discrepancies, protecting documents with bank-compliant security measures.
Unlike a centralized public ledger, transactional data on the Corda platform is only shared with the entities involved in the transaction, allowing for a high level of privacy, as sensitive data will be shared as needed.
Skuchain
Skuchain uses DLT to enable collaborative trading along the global trade supply chain. Skuchain is the maker of EC3, or Empowered Collaborative Commerce Cloud, a blockchain-based platform that offers end-to-end solutions for the trade finance industry. Through EC3, participants can share business documents and other electronic data with other members of the supply chain ecosystem while maintaining control and confidentiality of the data.
The platform uses Distributed Ledger Payment Commitment, a global standard for payment commitments on a blockchain network, to provide access to finance. The EC3 framework is built on Hyperledger Fabric, an open source blockchain that is fully interoperable with other networks.
eTradeConnect
Through a partnership with Ping An Technology in Shenzhen, China, eTradeConnect has developed a Hyperledger Fabric-based framework for trade finance. This Hong Kong-based company is a trade finance consortium with a DLT platform offering a range of trade finance solutions such as duplicate finance checks, payment status updates, pre-shipment trade finance and invoice creation, to name a few. some.
With the intention of releasing a fully interoperable DLT trading platform, current eTradeConnect technology is currently available in Australia and China, with participants such as Bank of East Asia, Hang Seng Bank and Industrial and Commercial Bank of China.
India Trade Connect
Headquartered in India with the aim of achieving a global footprint, India Trade Connect is another DLT-based trade finance initiative that provides a complete set of end-to-end trade and supply chain solutions on the blockchain.
India Trade Connect is built on an interoperable platform that enables the digitization of letters of credit, collection invoices, consumer-to-consumer and business-to-business transactions, bank guarantees and invoice financing. Participants in the platform are able to simplify Know Your Customer processes with a unified and digitized national identity archive.
Komgo
Built on the Quorum blockchain infrastructure, Komgo is a fully decentralized commodity trading finance network. Quorum is an enterprise blockchain solution based on the Ethereum protocol with the aim of offering an authorized enterprise-grade blockchain with privacy controls suitable for financial firms.
One of the main features that Komgo offers on its DLT platform is a certification feature that allows users and non-users to verify authenticity by stamping their documents on the network. The platform also has a KYC solution that standardizes the identification process while maintaining user privacy as needed. It also allows users to directly send digital commerce data and documents to financial institutions.
Marco Polo network
Marco Polo Network is a DLT platform created to facilitate working capital financing solutions such as credit financing and payment commitments for businesses in commercial finance. Powered by the DLT Corda platform, Marco Polo also offers its users secure distributed data storage, accounting and identity management, to name a few things.
So far, Marco Polo Network is made up of around 30 banks along with other institutions such as Microsoft, Mastercard and Pole Star. The platform is a legacy system and application programming interface that allows banks to facilitate communications with corporate customers by integrating corporate customers with corporate resource planning.
We.Trade
This Europe-based financial consortium offers payment automation based on set terms, bank payment commitment and invoice financing on a Hyperledger-based blockchain network. We.Trade will also include an insurance and logistics servicer as well as additional payment and multipayment trigger solutions in the future.
The We.Trade platform is built in partnership with IBM and now has stakeholders around the world, including CaixaBank, Deutsche Bank, Belgian CBC, and Eurobank in Greece, to name a few.
TradeWaltz
With a plan to create a DLT network that provides security for international trade, the TradeWaltz platform features an international trade ecosystem that enables the sharing of electronic documents with guaranteed authenticity of transactions. So far, the platform has attracted a number of participants, including Mitsubishi Corporation, banks, and a number of Japan-based insurance companies.
UAE Trade Connect
UAE Trade Connect is an authorized DLT project that will be launched in December. So far, pilot tests for the Hyperledger Fabric-based project have attracted up to eight banks that will participate in the launch. The UAE Trade Connect platform will include solutions that will allow banks to solve fraudulent billing problems.
The platform is set up to digitize physical data using a combination of machine learning and optical character recognition, keeping confidential data private throughout the process. Therefore, member banks will be able to check for duplicate and fraudulent invoices on the blockchain.
People’s Bank of China Blockchain Trade Finance Platform
This China-focused project is the result of a collection of four blockchain applications that originally comprised the Blockchain Bay Area Trade Finance platform. With 48 banks on board, the platform is comprised of commercial information collection and bill deferral functions, not to mention a tax filing and customer accounting financing solution.
Despite having representatives such as the People’s Bank of China and China Construction Bank, this platform operates on a non-profit business model, allowing for greater focus on offering the best trade finance solutions on the blockchain. The platform also covers accounts receivable solutions for supply chains and automated tax returns.
The future: a fully digitized, DLT-based global trading ecosystem
If the current pandemic has accelerated digitalization, what stands in the way of achieving a fully digital global trading ecosystem? Despite the optimism shared by industry players, Trade Finance Global’s Patel noted that there are still a number of bottlenecks:
“There is a lack of legal clarity and an enabling regulatory framework that companies face when it comes to implementing DLT solutions across the industry. Most banks have not yet seen significant support from the authorities to facilitate digital commerce. “
Ganne of the WTO stressed that there are two key challenges slowing down digitization: the first is “the lack of global standards on data models and processes” and “the second is a lack of legal clarity that allows for a regulatory framework”. He added:
“The ICC which was launched a couple of months ago and in which the WTO participates aims to address the first problem. The second issue will require a comprehensive dialogue between regulators and some push from the private sector. “
Hence, it appears that achieving full DLT adoption will require some private sector push and comprehensive dialogue between regulators.
