As the world settles into living with the impact of COVID-19, there’s been no shortage of discussions exploring the way life has changed as a result of lockdown. Everyone, from every walk of life, has been caught off-guard by the pandemic and not a single industry has been insulated from the disruption caused by lockdown measures, says Carl Wegner, CEO of Contour.
For trade finance, the pandemic didn’t only create new problems but exacerbated deeply-rooted, long-standing issues in the sector. As such, the industry needs to look beyond short-term measures to simply weather the current storm. As a second wave looks increasingly likely companies and financial institutions need to ensure they don’t make the same mistakes twice.
To truly protect itself from future crises, trade finance must apply the lessons learned this year into current practices – with digitisation and blockchain key examples of achieving this.
At the moment, trade finance is a complex, slow, cumbersome process. Invoices, packing lists, insurance documents, and many other documents are printed, signed, stamped, and hand couriered to banks and trading partners. They are checked and double-checked in a lengthy process that’s prone to human errors and delays.
This traditional method of trade finance wasn’t fit for purpose even before COVID-19, and it’s certainly unsustainable now. Sending documents back and forth this way begins to fall apart when many staff are working from home, especially at a time when everyone is more conscious of what and who they come into contact with.
While it’s impossible to predict the nature of future global crises, it’s not unreasonable to expect the industry to respond more rapidly, having already experienced COVID-19. Digitisation and blockchain can provide the foundation of a future-proofed trade finance industry.
Uploading and processing trade documentation digitally provides a smarter, safer option that also saves time. Additionally, the potential efficiency gains from automating these processes are enormous – both in terms of human labour, cost and effectiveness.
A digital global network meets current public health concerns, but also tackles the long-standing barriers to efficient trade finance that will benefit the industry beyond this or other crises. More importantly, it’s also attainable. The technology that would enable the trade finance industry to go paperless exists. It’s been tried, tested, and proven to work.
Working remotely carries different but equally significant security concerns that a digital solution must also be sensitive to. For example, information exchanged between banks and corporates must be sent on secure servers, which is harder to guarantee when working from home. This is where using blockchain technology can become indispensable. A blockchain network is auditable by design, meaning that any changes can be traced and tracked in real-time, decreasing the risk of fraud. In turn, this lets banks and corporates transact and share information with confidence, as both health and cyber security risks are much lower.
By leveraging these two technical solutions, trade finance would not be an industry restricted only to offices, ports and ships. If needed, administration could be handled in studies and living rooms, granting the industry unprecedented stability that would offset disruption from another pandemic.
COVID-19 has challenged countless established practices and norms that have been taken for granted. It’s presented an unprecedented challenge to most industries and prompted a shift to a new normal. However, by taking this chance to implement a lasting infrastructure that grants the industry a degree of flexibility, means that adapting to any future global emergency will be much easier and there will be built in resilience to weather any challenge.