Financial institutions should accelerate their implementation of blockchain technologies in their trade finance operations or face falling behind the competition, according to a new analysis from Bain.

The global consulting firm reckons banks should be contemplating migrating letter of credit (L/C) business to blockchain because it carries fewer costs.

Commercial opportunities

Bain argues that about 50 per cent of banks' costs for an L/C arise from manual document handling and checking, which creates delays, errors and expense.

That, they say, opens the door to huge potential improvements from the distributed ledgers that provide a complete audit trail of transactions and which lie behind blockchain technologies.

Bank awareness

Bain concedes that commercial offerings capitalising on that possibility are still in early stages, although DC-PRO has pointed out that several banks are known to be currently working on blockchain technologies (Trade-Based Financial Crime, 27 May 2016).

Moreover, awareness of the opportunities and challenges of blockchain have been recognised in trade finance circles for some time now, both in terms of its utility as a trade finance instrument and its potential effectiveness as a tool for identifying potential money laundering and terrorist financing activity (Trade-Based Financial Crime, 5 August 2015).

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.