Traditionally a paper-based process, the world of trade finance has been going through a digital transformation over the past several years. But from bank payment obligations to e-documentation, technology vendors have been pushing hard to onboard more trade finance banks onto their platforms.

The journey of trade finance digitization got a boost early in 2017, when Bank of China became the first “Big Four” bank in China to use Bolero’s electronic trade document platform, aimed at benefiting its exporters. According to Bolero, the move by Bank of China was the result of its clients demanding better visibility and control over documents, such as letters of credit, when transacting with international partners.

While the e-documentation of trade documents is a step in the right direction, it doesn’t necessarily address the cybersecurity concerns that some banks may have when executing electronic transactions. As a result, other transactional solutions based on the blockchain principle have taken form. Just last week Postal Savings Bank of China, together with IBM, developed an internal blockchain asset custody system to help with credit verifications on prospective customers. The bank said they had conducted around 100 transactions on the system.

“It [blockchain] essentially is a mechanism for imposing requirements on a network of validating computers to prove the information that is being transacted. The bigger the number of users and holders of that ledger, the safer it is. If one ledger goes down there are multiple other ones. That also means that the bigger it is, the harder it is to attack,” says Michael Casey, senior adviser, blockchain opportunities at MIT Media Lab. In other words, blockchain’s security strength lies in its decentralized nature.

Outside of China, European banks including Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale, and UniCredit, recently signed a trade finance agreement to develop a shared blockchain platform called Digital Trade Chain (DTC). The solution aims to simplify trade finance processes for SMEs by reducing administrative paperwork and by maintaining secured records on a digital distributed ledger.

Yet despite the prospects, challenges still remain for blockchain. “The [blockchain] key is effectively being used as a password for me to access my data. Once we push data like this on the end user they have control of it, however, we do also have to think hard about how we manage those keys. If you lose the key you lose access to your data,” says Casey. “We may have to get third parties involved in the key management process. But the question is how do we reconstruct that model so that we don’t have a centralized management of all of this data?”