more than just banks coming together. Instead, it requires
a critical mass of organizations to adopt “straight-through
processing,” an automated workflow from the point when
the loan is requested through to when the goods are
received and the payment for the shipment is processed.
Participation by non-banking participants is critical to its
success. However, each will need an incentive to become
part of a blockchain. Let’s consider just a few of the potential participants and how they could benefit from involvement in blockchain.
BENEFITS FOR IMPORTERS AND EXPORTERS
Blockchain enables faster processing of transactions between
and within parties. Consider just one possible example, the
international letter of credit. In very simple terms, a letter
of credit is a written guarantee by the buyer’s or importer’s
bank (the “issuing bank”) to the seller’s or exporter’s bank
(the “advising bank”) to pay an agreed amount for the
goods when specified conditions, including time limits and
the presentation of documents, have been met.
When the importer applies to its bank for a letter of
credit, all kinds of checks, such as risk, compliance, and
credit, are required before the L/C can be initiated. Once
it has been initiated, the importer must then wait for the
exporter’s bank and, subsequently, the exporter to be
informed. When the goods have been shipped, it could take
up to five days for both the advising and issuing banks to
complete their parts of the transaction; only then can the
importer retrieve the documents required for picking up
the shipment.
With blockchain, however, “smart” contracts could automatically execute the L/C application steps and checks, issuance and advising processes, document checking, execution
of payments, and the registration of all these transactions
on the blockchain. All of this can occur outside of business
hours. The time required from initiation to payment can
therefore be dramatically reduced. For example, because
blockchain automates the document checking steps (
paperless trade is a prerequisite), the time required from sending
the documents to the exporter’s bank until document
retrieval by the importer—including all settlements and
payments, if they are not deferred—can be reduced from
as many as 10 days to only one hour.
This, of course, assumes no discrepancies, which could
still occur, depending on the setup of the blockchain. If
there are discrepancies, they will be detected right after the
documents are created—much sooner than in traditional
processes—and all applicable participants will immediately
be aware of them. In addition to the reduced transaction
time, other benefits for importers and exporters include
