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 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.
1 LIST OF TABLES. Rationale of thesis. Research objectives and research questions. Structure of the thesis.
8 Chapter 1: Overview of blockchain technology and international trade finance. Classification of Blockchain. Advantages and disadvantages of blockchain. International trade financing.
Methods of international trade finance. Blockchain application in international trade finance. Blockchain application in international trade finance. Differences in characteristics of traditional trade finance methods and trade finance in blockchain application.
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. Experiences in applying blockchain technology in trade finance activities worldwide.
Platform of blockchain used in trade finance. Application of blockchain of banks in executing international trade finance transactions. The application of blockchain technology in the international trade finance economy in Vietnam. Legal framework for blockchain application activities in funding international commerce.
Overview of blockchain technology in the international trade finance economy in Vietnam. Quantity and quality of projects operating in the field of blockchain projects in Vietnam. A case of experience in applying blockchain technology in international trade finance in Vietnam. 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. Blockchain development orientation. Solutions for establishing blockchain platforms in international trade finance in Vietnam.
Finalization and application of the legal testing framework. Developing human resources to meet requirements. Establishing a management agency for blockchain application activities. Building a blockchain network with many participants.
Building an access management mechanism. Continue to improve business processes, and build products suitable for market. 57 Summary of chapter three. 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 1 LIST OF TABLES Tables Name Page 1.1 Structure of a block 9 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 3.2 Percentage of Fintech Companies in Vietnam 2 INTRODUCTION 1.
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 3 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 4 technology to make good use of blockchain technology and not be left behind in the market competition.
Literature review Outline of the overall study Most countries have R&D strategies blockchain art to go to the first style or less than also have a start-up the trend of exploiting this modern technology. Accordingly, many studies have been conducted to develop and systematize theoretical issues as well as to build national blockchain technology development programs and policies. Research on blockchain technology appeared in 2008 by Satoshi Nakamoto with the target item used for the first time in the first timeline of the money - bitcoin. This is the same as the flare and the power of bitcoin, the blockchain - the technology behind it quickly gained widespread attention from both academia and policy circles.
Companies and banks of different countries also have their research papers on blockchain in trade finance. For example, BBVA Bank (2015) and J. Morgan (2019) explained blockchain technology and its impact on the financial system: blockchain-based financial methods offer greater security, speed, and reliability than conventional methods. According to Ermakov et al.
(2017), blockchain technology can become one of the effective ways to improve the LC payment method for international transactions. Using this technology will save customers time and money, and it could change the way trade is financed for the benefit of businesses around the world. The article gives examples of an LC blockchain application that has been deployed in banks such as Barclays, HSBC, and Alfa-Bank and achieved satisfactory results. Bogucharskov et al.
(2018) also point out the many advantages of blockchain applications in trade finance and the prospects for using the technology in this area. The article examines the places and ways of 5 applying blockchain in trade finance and identifies critical aspects of improving the transaction process. The authors demonstrated the interoperability of parties with letters of credit and blockchain application factoring and showed its effect on these popular trade finance tools. Moreover, the article correctly identifies several problems and implementation solutions to apply technology more effectively in international trade finance.
Overview of domestic research Currently, blockchain technology in Vietnam is still a new topic and attracts the attention of parties. Blockchain technology is studied in many social fields, showing the strong potential of this platform in Vietnam in the future. In the Central Institute for Economic Management, Nguyen (2018) has outlined the general issues of blockchain technology so that readers can have an overview of the concept, history, benefits, and limitations of blockchain platforms and the government. Do (2020) analyzes that blockchain technology can gradually replace activities that take a lot of time and human effort in the future, especially in the field of finance, clearing transactions, and securing underwriting contracts.
At the same time, it clearly outlines how to apply and store securities transactions on the blockchain platform. Le (2018) points out the effects of blockchain on logistics and explains recommendations to enhance the role of blockchain in the logistics system of Vietnam. Logistic and trade finances are necessary prefixes and interconnected systems of devices in the global supply chain; this article also outlines some of the benefits of smart coins in logistics expressed through payment conditions to the seller. Giang’s research (2018) refers to blockchain technology in the banking sector.
The article outlines the concept, how blockchain works, some use cases in the banking industry, and challenges when applying blockchain. However, the research content only approaches in the general direction, 6 does not refer to the application in the field of trade finance, and does not provide practical application cases. Research gap The number of domestic studies on public application activities of blockchain technology in international trade finance is still relatively modest. Most of the topics focus on researching blockchain applications in other fields or the banking and finance systems but have not analyzed specific cases.
Some articles are related, but the research content is still unsure.