Mercury

How Blockchain Can Reshape Trade Finance

Trade financing, where financial institutions provide credit
facilities in order to guarantee exchange of goods, is a centuries
old industry that hasn’t seen much change with the growth
of global trade flows. In 2015 alone, the trade finance market
was measured at more than $10 trillion USD.
Deloitte has re-imagined how trade finance can operate leveraging
a Blockchain based infrastructure to drive efficiencies, reduce cost
base and open up new revenue opportunities, like newer models
of credit and funding guarantees backing the trade.

Invoice factoring:
Manual contract creation: 2 Exporters use invoices
to achieve short-term
1 The import bank manually
reviews the financial
financing from multiple
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:

3 The shipment of goods

is delayed due to multiple

Pain Points
checks by intermediaries
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
truth:
As financials are sent from one
entity to another, significant
version control challenges
exist as changes are made
Duplicative bills of lading:
Bills of lading are financed
multiple times due to the
inability of banks to verify
their authenticity
Multiple platforms:
Since each party across
countries operates on
different platforms,
miscommunication
is common and the
propensity for fraud is high
Manual AML review:
The export bank must
manually conduct AML
checks using the financials
provided by the import bank
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
parties and the customs agent
in the exporting country - with
all providing their respective
digital signature of approval on
the Blockchain smart contract
After receiving the obligations,
the exporter will digitally sign
Blockchain-equivalent letter of
credit within the smart contract
to initiate shipment
Export bank will review the 3
provided payment obligation
and once approved, a Smart
Contract will be generated on
the Blockchain to cover terms &
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
schatterjee@deloitte.ca visingla@deloitte.ca matlam@deloitte.ca