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Trade Finance Mercury How Blockchain Can Reshape Trade Finance Trade financing, where financial institutions provide credit Deloitte has re-imagined how trade finance can operate leveraging facilities in order to guarantee exchange of goods, is a centuries a Blockchain based infrastructure to drive efficiencies, reduce cost old industry that hasn’t seen much change with the growth base and open up new revenue opportunities, like newer models of global trade flows. In 2015 alone, the trade finance market of credit and funding guarantees backing the trade. was measured at more than $10 trillion USD. Invoice factoring: Exporters use invoices Manual contract creation: 2 to achieve short-term The import bank manually financing from multiple 1 reviews the financial banks, adding additional agreement provided by risk in the event the the importer and sends delivery of goods fails financials to the correspondent bank Delayed timeline: The shipment of goods 3 is delayed due to multiple checks by intermediaries Pain Points and numerous Delayed payment: communication points Multiple intermediaries must verify that funds 8 of Today’s have been delivered to the importer as agreed prior to Processes the disbursement of funds to the exporting bank 4 7 5 6 Multiple versions of the Duplicative bills of lading: Multiple platforms: Manual AML review: truth: Bills of lading are financed Since each party across The export bank must As financials are sent from one multiple times due to the countries operates on manually conduct AML entity to another, significant inability of banks to verify different platforms, checks using the financials version control challenges their authenticity miscommunication provided by the import bank exist as changes are made is common and the propensity for fraud is high Future State Vision Upon purchase, the agreement In real-time, the import bank will of sale between the importer have capability to review purchase and exporter is shared with import agreement, draft terms of credit bank using a Smart Contract on IMPORT and submit obligation to pay to the Blockchain export bank 1 2 EXPORT Goods will be inspected by 3rd After receiving the obligations, Export bank will review the 3 parties and the customs agent the exporter will digitally sign provided payment obligation in the exporting country - with Blockchain-equivalent letter of and once approved, a Smart all providing their respective credit within the smart contract Contract will be generated on digital signature of approval on to initiate shipment the Blockchain to cover terms & the Blockchain smart contract conditions and lock-in obligations 5 4 6 During transit, goods will be Upon delivery, importer will Using provided acknowledgement, transported from Country A digitally acknowledge receipt Blockchain will automate payment to Country B of goods and trigger payment from importer to exporter via a Smart Contract 7 8 Blockchain Advantages Real-time Transparent Disintermedi- Reduced coun- Decentralized Proof of Automated Regulatory review: factoring: ation: terparty risk: contract ownership: settlement transparency: Financial Invoices Banks facilitating Bills of lading are execution: The title available and reduced Regulators are documents linked accessed on trade finance tracked through As contract within Blockchain transaction provided with and accessible Blockchain through Block- Blockchain, terms are met, provides fees: a real-time view through provide a chain do not eliminating the status is updated transparency Contract terms of essential Blockchain are real-time and require a trusted potential for on Blockchain into the location executed via documents reviewed and transparent view intermediary double spending in real time, and ownership Smart Contract to assist in approved in real into subsequent to assume risk, reducing the time of the goods eliminate enforcement and time, reducing short-term eliminating the and headcount the need for AML activities the time it financing need for corre- required to correspondent takes to initiate spondent banks monitor the banks and shipment delivery of goods additional transaction fees For more information please contact: Soumak Chatterjee Vikas Singla Matthew Lam Senior Manager Manager Manager [email protected] [email protected] [email protected].
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