International traders engaging in cross-border trade are leveraging the blockchain to disrupt operations for better output. While the technology has its pros and cons, it has started to be adopted by numerous Southeast Asian traders aiming to streamline operations.
At the moment, blockchain is primarily being used to increase visibility and enhance goods tracking, through the trade lifespan. Whereas for payments, critical trust-building solutions such as overseas business verification and escrow continue to be highly considered by traders in the region as they offer convenience and value for money in cross-border transactions .
The Pros of Using Blockchain in International Trade
1. Adding Value in Key Trading Operations
Blockchain is assisting in cross-border trade areas, such as authentication, documentation management, ownership management, etc. It is allowing international parties to be connected through the blockchain medium, for mapping bills of lading, policies of insurance, invoices, etc.
It is helping in reducing the reliance on middlemen, and secondary parties, to facilitate the successful trade of goods across borders. While most traders still prefer traditionally adopted technologies, they are reviewing the role of Blockchain long-term for streamlined adoption.
2. Aiding In Paperless Transition and Documentation
Technologies, such as blockchain, are set to contribute to the growth of international trade by 31-34% over the next 15 years. They enable the digitization of the B2B trading process by creating a digital record that can be analyzed by decision makers.
Technologically mature countries, such as those in Southeast Asia, adopt solutions that reduce bottlenecks in key areas such as paperless international trading. Traders are cautiously adopting blockchain to help reduce the manual management of documentation and trading assets through increased digitization.
Blockchain is being used to streamline the KYC and regulatory compliance process, to gather complete information about buyers and sellers through the digital medium. Traders are digitizing information gathering to reduce manual intervention through blockchain and other mediums.
3. Enhancing Transparency through DLTs
The Distributed ledger technology (DLT) is being used across Southeast Asian countries, to help enhance tracking and tracing of goods across different supply chains. It is also being leveraged to ensure a digital map of the entire trade processes, for transparency within cross-border trade.
DLTs are being used to protect companies against counterfeit goods while providing insights on potential trading hazards that may arise during the transaction. Key Southeast Asian projects within the DLT space are enhancing trade visibility into cross-border operations for some B2B traders.
Key Challenges with Blockchain Currencies
Traders are experimenting with crypto within the Southeast Asian region as a means of payment but may not be completely satisfied with the payment structure. The increased volatility, lack of transparency, and issues with cybersecurity tracing, are driving traders to focus on other payment models.
While businesses are leveraging Blockchain for logistics mapping or digitizing documentation, they are still focusing on other innovative models such as escrow when executing an overseas payment.
The Preferred Strategy for Secure Cross-Border Transactions
Businesses that are regularly engaging in cross-border trade will find a lot of value in using an escrow service to secure their transactions. An escrow agreement introduces greater trust and transparency into trade by ensuring that payments are only released after both buyers and sellers fulfill the terms and conditions that they have agreed on.
Another critical aspect of cross-border trade is business verification and vetting. Performing a complete background analysis on the entity at the other end of the trade is vital to business success in the Southeast Asian region.
Tazapay – a member of the Singapore FinTech Association eliminates uncertainty risks in cross-border trade, by conducting background checks on parties as well as protecting international payments via our easy-to-use escrow product.