Digitalization of trade finance transactions – Explore the opportunities and constraints of blockchain technology by analysing the current state of adoption within banking industry
- From the beginning of globalization, international trade plays a vital role in global economy und it is now undergoing a transformation period. The impact of economic circum-stances, the invention of new technologies and the increase of regulatory requirements on the global scale has continue to attract more attention in many major economies participating in the global trade environment. Trade finance is known as one of the oldest components of international finance which helps facilitating the transactions between suppliers, merchants and companies by providing them with sufficient working capital in order to finance their commercial transactions and reduce potential risks. Nowadays, trade process has become more interconnected and major events driven by political or macroeconomic factors like the financial crisis 2008 or the recent Brexit indicate that core of trade finance process is in need of disruption to decrease inefficiencies and improve cost factors as well as stability. Digitization in trade finance has been considered as challenging for a long time since the main process is heavily paper-based. Furthermore, cross-border trade activities usually involve a large number of different participants. During this process, exchanging trade-related information such as country of origin, product details, restrictions/prohibitions on import etc. creates large amount of documentation. The aim of this thesis is to research and explore the current state of trade finance with regard to banking industry and also to find out how blockchain technology can potentially enhance or even redesign the trade finance pro-cesses by reviewing how close is the industry to undergo major adoptions.
This thesis is structured in a way to provide readers the theoretical background to over-all trade finance process and get them familiar with the concept of letter of credit, guar-antee, bank endorsement, accounts receivable insurance etc. In the next part, the core aspects of blockchain technology and its usability will be explained, analysed and dis-cussed. Finally, to examine the feasibility of implementing blockchain in trade finance, different research methods will be conducted in the form of literature review, expert interviews, gathering of data through polls, questionnaires, and surveys.