Driving Sustainability in the Digital Transformation of the Letters of Credit Supply Chain: Evidence from Bangladesh's Banking Sector

Abstract

Letters of Credit (LCs) are pivotal in global trade finance, yet traditional processes are plagued by inefficiencies, fraud, and a lack of transparency, particularly in developing economies such as Bangladesh. This study investigates how three technological innovations Blockchain Database Integration (BDI), Collaborative Platforms (COP), and Compliance Automation (CAU) drive the evolution of a Sustainable Letters of Credit Supply Chain (SLCSC), mediated through the development of a Technology-based LC Supply Chain (LCSC). Drawing on a sample of 400 LC stakeholders in Bangladesh, the research employed a quantitative methodology using a reflective measurement model. Data were analyzed using Exploratory Factor Analysis (EFA) in IBM SPSS and Structural Equation Modeling (SEM) in IBM AMOS to assess reliability, validity, and the hypothesized relationships. The results indicate that Compliance Automation exerts a strong, significant positive effect on the LCSC (? = 0.661, p < 0.001) and Collaborative Platforms a weaker but significant effect (? = 0.087, p = 0.04), whereas Blockchain Database Integration has no significant effect (? = 0.016, p = 0.687). The LCSC, in turn, exerts a strong positive impact on the SLCSC (? = 0.938, p < 0.001). The findings demonstrate that compliance automation is the primary enabler of a technology-based LC supply chain, while the influence of blockchain remains constrained by prevailing infrastructural and regulatory conditions. The study’s principal contribution is to disaggregate the technological drivers of trade-finance digitalization into three empirically distinct constructs and to demonstrate that their influence on sustainability is fully mediated by the technology-based LC supply chain, providing structural- model evidence of this mechanism from Bangladesh’s banking sector. The study offers critical insights for banks, businesses, and policymakers seeking to modernize LC operations for enhanced efficiency, security, and eco- efficiency.