We live in an increasingly cashless society. Contactless cards and the ability to make payments using a mobile phone have transformed the way we go about our day-to-day transactions. We are used to this, but who would think the ease of the “one-click” purchase ends there? The finance behind the trades and transport that deliver our goods to factories, to the shops and to our doors is bogged-down by much slower processes. In 2020, an age of AI and supercomputing, where advanced technologies are being used to tackle some of the most critical problems we face as humanity, the process of trade finance, remarkably, still relies on paper documents and rubber stamps.
Why? A lot of it comes down to risk. For institutional lenders, new technologies come with new risks. Some of the larger companies and institutions are ambivalent to embrace new tech either because they feel like what they have works adequately, or their operation is so big that they would risk damaging it in the pursuit of modernisation.
Trust is a risky business. When handling data, whether it be digitally or on paper, there are many risks around fraud or identity theft that governments and companies are constantly evolving their processes to combat. For many businesses, stamps and signatures seem to be the only option in the realm of trade finance to guarantee legitimacy and trust between all parties involved.
Change is now an inevitability and a necessity due to the dire state in which Covid-19 has left trade. Risk averse banks and financiers will not lend to SMEs, not only because the of health of the businesses themselves, but because of the archaic and risk-laden processes which these institutions rely on to execute lending in the first place. One of the key components for economic recovery will be reintroducing security and trust among parties, in order to get finance and trade moving.
The Envoy platform not only connects financiers to trades, but also removes the risk of fraud and inefficiency through automated document and goods validation, as well as transparent and secure records which are visible to all parties. Using Blockchain technology and the Stellar protocol, Envoy is able to provide payment clearing and settlement to its clients in real time – without the need for an exchange. Digital assets serve as the agreed-upon store of value exchanged between parties to settle transactions. The boost to efficiency not only saves time, but implicitly integrates trust into the system.
Before the pandemic, there was an estimated trade finance gap of c. $30BN orders declined each week. Envoy now predicts a massive increase in this gap, as SMEs struggle to gain access to the finance essential to tide them over and deliver their trades against the global financial turmoil and the current limitations to normal working practices. While many of us continue to avoid travel and working in offices in order to maintain sufficient social distancing measures, embracing technologies which can help bridge the physical and financial gaps we face in the coming years is the safest option available to us.