As trade wars intensify, banks are looking to blockchain as a way to streamline international trade transactions.

Historically inundated with paper trails and inefficiencies, banks and regulators worldwide are teaming up to digitize the trade financing process. HSBC, Standard Chartered, and others belong to a range of consortia that have had successful pilots using distributed ledger technologies (DLT) to process live trade finance transactions.Live briefing: Consumer Banks in The Digital Age

However, before any of these pilots can move from initial test to full-scale production, broader questions around regulations, scalability, and security need to be addressed.

Why does it matter? Trade finance underpins the $17T international trade market and is estimated to represent $5T – $10T of trade, depending on the definition. Further, there’s approximately $1.5T in unmet demand for trade financing.

Why now? In trade finance, banks facilitate international trade by providing financing to buyers and sellers. However, as the trade war intensifies between the US and countries such as China, banks are looking to reduce some of the risk they take on through technological innovations.

How are banks responding? In the short term, banks are reducing their reliance on antiquated manual processes and digitizing key trade documents, like Letters of Credit (LOCs), to reduce cost and improve efficiency.

Others are looking to replace the process altogether with longer term applications of distributed ledger technologies (DLTs) . . . . .