Innovation is coming to trade finance, as startups and financial institutions seek to leverage blockchain to make trade finance more efficient, accessible, and trustworthy.
As the US-China trade war escalates, public company executives are discussing the impact tariffs have across industries and lines of revenue.
Earnings calls mentions of the term “trade war” have skyrocketed since early March of this year, when President Trump first announced tariffs on imported steel and aluminum.
One major topic on bankers’ minds is how the trade war and tariffs will hamper the $17T international trade market — as well as the trade finance investments that underpin it (which by some definitions represent up to 66% of the trade market).
When asked by analysts about the impact of the tariffs, executives are split on the severity of the issue.
On a Q1’18 earnings call, Andrew Halford, CFO & Director of Standard Chartered, noted that the bank gets most of its trade finance revenues in Asia, and is not likely to see any impact of the tariffs:
“While we believe a full-blown trade war between the US and China will not be good for anybody, the reality is that the income we generate from financing trade close on the relatively more competitive routes between the US and China/Hong Kong is not significant to the group overall. A much greater proportion of our trade finance business relates to financing China’s trade with markets in the rest of the footprint.”
Standard Chartered, along with many other global banks and financial institutions, is investing in tech solutions to digitize processes, and in the long term, even fully decentralize processes through blockchain technologies.
If they are successful, financial institutions could begin to fill the $1.5T gap that is unmet trade finance demand, as well as bring cost and operational efficiencies to global trade.
Today, there is a range of technology applications creating efficiencies and gunning to replace intermediary processes. Below, we dive into well-funded tech firms Flexport and Tradeshift, emerging early-stage companies leveraging blockchains, and the banks and regulators looking at distributed ledger technologies (DLT).
Well-funded startups look to solve immediate trade finance pain points
Today, trade finance is still riddled with manual inefficiencies, antiquated credit modeling, and generally opaque processes.