Treasury Today Country Profiles in association with Citi

Trade finance: the future is electronic

Close up of circuit board

The uptake of e-trade finance solutions in the corporate sphere has been relatively slow to date. Yet a recent report by the Aite Group highlights that banks are seeing an increase in demand for electronic alternatives from their corporate clients.

For many organisations the benefits of electronic trade finance, otherwise known as e-trade finance or paperless trade, are clear. Nevertheless, uptake has generally been slow amongst corporates. A new study released by independent research and advisory firm Aite Group, indicates that things might be about to change.

The study, which sourced responses from 53 senior managers responsible for trade finance or corporate banking at international and regional banks in Europe, North America, the Asia Pacific, and the Middle East and Africa, found that traditional paper-based trade finance is shifting to the digital sphere as corporate demand increases. Overall, 77% of those questioned said that they either ‘agree’ (55%) or ‘strongly agree’ (22%) that their corporate clients are demanding e-trade finance solutions. “For me this was the most interesting finding of the study,” Enrico Camerinelli, Senior Analyst at Aite Group tells Treasury Today. “Corporates are clearly asking for these products now.”

The most readily available e-services among respondents were: exchange and settlement of funds; tracking status of documents; and monitoring the receipt of funds. But despite the demand, paper is still prominent: 19 of the 53 banks surveyed said that they offer no electronic trade finance interfaces whatsoever.

What’s the problem?

The hitch, it seems, is that certain banks don’t see the provision of e-trade finance as profitable. Of those banks surveyed, 38% believe that e-trade finance will have no effect on their current revenue. However, for Camerinelli the business opportunities open to banks by embracing e-trade finance are plentiful. “If the banks begin to shift to e-trade finance they will spend less time working through paper documents and will be able to offer additional services, such as analytics. These are areas which the banks can then target to increase their profits.”

Interestingly, despite the demand from corporates, those banks surveyed actually suggested that the main barrier to e-trade finance growth is that corporates are slow to create a business case for adoption. Another barrier is the lack of legislation surrounding e-trade finance. Furthermore, legacy processes and attitudes can be hard to break. In Camerinelli’s view, “these results show that there are both internal and external barriers to e-trade finance. For me what is really holding back the growth of e-trade finance is a lack of education and a conservative mind-set.”

Regional culture

According to Camerinelli, Asia Pacific is the most forward-looking region regarding e-trade finance. “There are many countries in the region which are looking to adopt paperless trade: Korea, Singapore and Indonesia, to name a few. The main reason for this is that they don’t have the legacy systems in place like in Europe and the US, which makes it easier to adopt.” In addition, there are a number of dematerialisation initiatives taking place across the region.

“These initiatives are replacing the paperwork surrounding trade across the region with the electronic exchange of documents,” says Camerinelli. “While these changes are not e-trade finance-specific, it does show that there is a culture in the region of replacing paper with electronic documents and this is pushing into the trade finance field as well.”

Dematerialisation on the horizon

Indeed, the report notes that 47% of those surveyed said that they would electronically produce and submit/receive invoices and electronify paper invoices in the next three years. Forty per cent also said that they would offer corporates the ability to electronically capture and submit/receive purchase orders, while 38% would automatically match purchase orders, invoices, and receipts and identify exceptions.

But “to further the availability of e-trade finance, corporates should place more pressure on banks regarding their need for the product,” says Camerinelli. “Banks on the other hand need to focus on the value-add which can be created through providing this product for their corporate clients.”