Global management consultancy Bain & Co has published a report suggesting that smaller businesses will benefit most if they migrate from doing business on letter of credit (L/C) terms to using facilities available on trade finance platforms based on blockchain or distributed ledger technologies.

The suggestion is made in a white paper, Trade Tech - A New Age for Trade and Supply Chain Finance, commissioned by the World Economic Forum to identify how so-called fourth industrial revolution technologies can help facilitate trade in the future.

Bain's view

"Financial instruments, such as L/Cs and guarantees, are particularly unattractive for small-ticket transactions because of the relatively high operational costs," Bain says.

The consultants go on to say that distributed ledger and other technological innovations promise groundbreaking advances in trade and supply chain finance by reducing costs and increasing ease of use.

Economic benefits

Bain says L/Cs and guarantees are time consuming and involve paper-heavy processes while blockchain alternatives will provide solutions that benefit smaller businesses most.

According to Bain, trade is already becoming more efficient for large multinationals and companies in developed countries, but smaller companies, particularly in poorer countries are paying too high a price.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.