Blockchain applications in trade finance international lessons and recommendations for vietnam

BANKING ACADEMY INTERNATIONAL BUSINESS FACULTY - BACHELOR’S THESIS Blockchain Applications in Trade Finance: International lessons and Recommendations for Vietnam Student Name: Tran Phuoc Dieu Anh Class: K21KDQTG Year: 2018-2022 Student Code: 21A4050054 Supervision: MSc Do Phu Dong Hanoi, May 2022 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014125806111000000 BANKING ACADEMY INTERNATIONAL BUSINESS FACULTY - BACHELOR’S THESIS Blockchain Applications in Trade Finance: International lessons and Recommendations for Vietnam Student Name: Tran Phuoc Dieu Anh Class: K21KDQTG Year: 2018-2022 Student Code: 21A4050054 Supervision: MSc Do Phu Dong Hanoi, May 2022 DECLARATION I undersigned solemnly declare that my thesis is based on my work conducted during my study under the supervision of MSc Do Phu Dong I assert the statements made and conclusions are drawn are an outcome of my research work If accepted, I hereby consent for my thesis to be available for photocopying and understand that any reference to or quotation from my thesis will receive an acknowledgment Hanoi, 21 May 2022 Student i ACKNOWLEDGEMENTS Throughout the writing of this thesis, I have received a great deal of support and assistance I would first like to thank my supervisor, MSc Do Phu Dong, whose expertise was invaluable in formulating the research questions and methodology Your insightful feedback pushed me to sharpen my thinking and brought my work to a higher level I would also like to thank my teammates, for their valuable guidance throughout my studies You provided me with the tools that I needed to choose the right direction and complete my thesis In addition, I would like to thank my parents for their wise counsel and sympathetic ear You are always there for me Finally, I could not have completed this thesis without the support of my friend, Nguyen Ngoc Cham, and Nguyen Huong Giang, who provided stimulating discussions as well as happy distractions to rest my mind outside of my research Student Tran Phuoc Dieu Anh ii TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF TABLES INTRODUCTION Rationale of thesis Literature review Research objectives and research questions Research scope Research methods Structure of the thesis Chapter 1: Overview of blockchain technology and international trade finance 1.1 Blockchain technology 1.1.1 Definition 1.1.2 Classification of Blockchain 11 1.1.3 Advantages and disadvantages of blockchain 15 1.2 International trade financing 19 1.2.1 Definition 19 1.2.2 Methods of international trade finance 20 1.3 Blockchain application in international trade finance 21 1.3.1 Blockchain application in international trade finance 21 1.3.2 Differences in characteristics of traditional trade finance methods and trade finance in blockchain application 28 1.3.3 Influenced factors when applying blockchain in trade financing 30 Summary of chapter one 32 Chapter 2: Experiences in applying blockchain technology in international trade finance worldwide and applicability in Vietnam 33 2.1 Experiences in applying blockchain technology in trade finance activities worldwide 33 2.1.1 Platform of blockchain used in trade finance 33 2.1.2 Application of blockchain of banks in executing international trade finance transactions 36 v 2.2 The application of blockchain technology in the international trade finance economy in Vietnam 39 2.2.1 Legal framework for blockchain application activities in funding international commerce 39 2.2.2 Overview of blockchain technology in the international trade finance economy in Vietnam 40 2.2.3 Quantity and quality of projects operating in the field of blockchain projects in Vietnam 41 2.2.4 A case of experience in applying blockchain technology in international trade finance in Vietnam 42 2.2.5 Assessment of the application of blockchain technology in international trade finance in Vietnam 43 Summary of chapter two 47 Chapter 3: Solutions to promote the application of blockchain technology in international trade financing in Vietnam 48 3.1 Blockchain development orientation 48 3.2 Solutions for establishing blockchain platforms in international trade finance in Vietnam 49 3.2.1 Finalization and application of the legal testing framework 50 3.2.2 Developing human resources to meet requirements 51 3.2.3 Establishing a management agency for blockchain application activities 53 3.2.4 Building a blockchain network with many participants 54 3.2.5 Building an access management mechanism 55 3.2.6 Standardized data 56 3.2.7 Continue to improve business processes, and build products suitable for market 57 Summary of chapter three 61 CONCLUSION 62 REFERENCE 64 v LIST OF ABBREVIATIONS Abbreviations Meaning AI Artificial Intelligence AML Anti-Money Laundering APAC Asia-Pacific BL Bill of Lading BPO Bank Payment Obligations FTA Free trade agreement IoT Internet of Things KYC Know Your Customer LC Letter of Credit ML Machine Learning SWIFT Society for Worldwide Interbank Financial Telecommunications LIST OF TABLES Tables Name Page 1.1 Structure of a block 1.2 Type of blockchains 11 1.3 How blockchain validates a transaction 15 1.4 Smart Contract model 1.5 Structure of the smart contract 1.6 Letter of credit process flow 2.1 Marco Polo Platform 2.2 Summary of transactions on the platform 2.3 LC Payment Process by HSBC 3.1 Requirement hierarchy 3.2 Percentage of Fintech Companies in Vietnam INTRODUCTION Rationale of thesis International trade finance plays a vital role in the flow of global trade However, traditional financing methods that operate on an outdated and manual system of paper documents have limited the development of world trade, such as speed of payment slow, prohibitive cost, and high risk in the transaction This is one of the reasons why businesses tend to use this method More money transfer methods than payment by letter of credit (LC) But by integrating technology into trade finance methods, the total value of global trade finance is expected to grow by 10.65 billion USD between 2019 - 2023, at a compound annual growth rate of more than 4% (according to the Global Trade Finance Market Report 2019 - 2023) Analysts say that integrating technology into trade finance will positively impact this market and be an important contributor to future growth Modern technical concepts, including (Blockchain), Artificial Intelligence (AI), Machine Learning (ML), and the Internet of Things (IoT), are often mentioned to solve problems arising in banking and developing applications in trade finance AI and ML use neurolinguistic programming, chatbots, and predictive analytics to address concerns, recognize patterns, predict needs, and provide business recommendations At the same time, the implementation of blockchain technology in trade finance allows businesses to increase efficiency and reduce the complexity of financial transactions Combining technology to improve efficiency in the trade finance process will be one of the market trends, contributing to the explosive growth in the next few years Although there are still some conflicting views about privacy and the applicability of blockchain, we cannot deny the specific successes of this technology in areas of life in general and trade finance According to experts' forecasts, blockchain will radically change the trade finance business by reducing the dependence on paper documents in the future By 2050, blockchain is expected to provide a digital record of transactions, reducing paper documents, and improving transparency between parties For example, blockchain can store detailed data about previous transactions and thus provide transaction history to facilitate risk assessment for the parties At the same time, because it is digitized based on blockchain technology, the issuance, and forwarding of arising documents also become faster, shortening the time, thereby reducing the costs incurred in the transaction Technavio's report on the global trade finance market for 2019 – 2023 shows that combining technology and trade finance to drive growth also points out the leading international trade finance market region in 2018 The above study also shows that the APAC region is forecast to contribute about 57% to the growth of global trade finance within the next year Thus, the development potential of the international trade finance market in Vietnam is large In addition, the Vietnamese government strongly encourages businesses and banks to apply technology to business and production, including blockchain technology Currently, many banks and other financial institutions worldwide have researched and applied blockchain technology to their professional activities This has increased efficiency, and transparency, saved intermediary costs, reduced transaction processing times, and improved the customer experience For example, in July 2019, HSBC Vietnam successfully assessed the first blockchain-based LC payment transaction in Vietnam between Duy Tan Plastics Production JSC and INEOS Styrolution Korea However, blockchain has not been widely applied in international trade finance in Vietnamese banks Vietnamese banks, the government, and businesses need to actively research and learn about this