When multinational companies consider banking services for their business, they tend to prefer large global banks with international branch networks. This is especially true in trade finance, which is dominated by a handful of global multinational mega-banks.
Yet there are tremendous opportunities for banks that have enhanced regional power—particularly in Asia, Latin America, Middle East, and Africa—to play a more prominent role international trade finance in their respective markets. According to the International Chamber of Commerce, there is a $1.6 trillion funding gap in trade finance markets. Regional banks can play a more prominent role this space—potentially partnering with larger banks and embedding themselves with multinational clients—before they find themselves crowded out by the bigger, global players.
Now is the time for regional powerhouse banks to step up their game and grab greater market share, especially now that new technologies are reducing the need for physical infrastructure to process transactions.
The trade financing issue, and the proposed DLT solution, are particularly important for Asian economies, including ASEAN, China and Hong Kong SAR, India and Korea. They account for almost three-quarters of total documentary for import-export transactions, and account for almost 7% (or $105 billion) of the trade finance gap. But for countries to benefit, they will need a coordinated approach.
“The benefits of adopting DLT in trade will affect everyone from banks to companies to governments to consumers,” said Gerry Mattios, Expert Vice-President at Bain & Company, and a key contributor to the study. “But action has to be taken in a collaborative way and with an ecosystem approach in mind. Individual actions won’t bring the expected results.”
If the recommendations are implemented and the estimated impact materializes, it would be one of the first cases where blockchain is mostly beneficial to SMEs and emerging markets, as opposed to large banks or technology companies in developed markets.