The global pandemic exposed the fragility of supply chains and the inefficiencies of global trade, which are still very much paper-based. To address this, and spur the industry on, SWIFT has issued a report calling for the various parties to come together and digitise trade once and for all.

It has become commonplace to say how the pandemic has accelerated digitisation, but this is no truer than with global trade. According to a report that was released by SWIFT last week, even though there was a substantial drop in trade in 2020, there was a rapid increase in the use of digital channels. Was this the tipping point that the industry needed to finally remove paper and manual processes from trade? Well, not quite.

Ebru Pakcan, Head of EMEA Emerging Markets at Citi, comments in the report that it is difficult to say whether the pandemic has been the tipping point for digitising trade, but the industry is now confident that it is possible. To get there, “We need mass adoption, and the work around standards will be a crucial milestone in achieving this. Trade is a big mountain to move; Covid-19 was a shakeup.”

SWIFT argues in the ‘Digitising trade: the time is now report’ that going digital is not just a matter of operational efficiency, it is about managing risk and business continuity. For corporates it is important because it affects their liquidity, the optimisation of financing, and ultimately it has an impact on growth.

In the face of so many initiatives to digitise trade, it is important that the industry works together. Otherwise, it risks developing numerous solutions in isolation of each other, a scenario that Michael Vrontamitis, Co-chair, International Chamber of Commerce Working Group on the Digitisation of Trade Finance, describes as ‘digital islands’, as companies, industries and governments digitise their own silos. “As a result, this is creating new challenges in addition to the inefficiency of paper and difficulties in business continuity seen during pandemic,” Vrontamitis is quoted as saying in the report.

The pandemic has highlighted the demand for digital trade solutions. SWIFT notes that during 2020 there was an increase in the use of the Digital Trade Channel, which enables corporates and banks to digitise their documentary trade transactions. This happened at the same time as there was a significant decline in documentary trade finance – in some parts of 2020, for example, it was declining 49% week on week, and for the year it declined 11%.

Daniel Schmand, Head of Trade Finance and Lending at Deutsche Bank, commented in the report that there should be a shift away from paper documentation. “However, at the same time, we are seeing a shift from a global, interconnected economy to de-globalised trade and increased uncertainty due to volatile commodity prices and geopolitical tensions. This is driving people back towards traditional documentary trade instruments. The two effects seem to be balancing each other out.”

To digitise trade, the industry needs to overcome these issues, and needs to achieve legal harmonisation, standardisation and interoperability – it is not just about having the right technology in place, SWIFT notes.

SWIFT was already working on a solution with a group of trade banks before the pandemic, which focused on repurposing the FileAct solution and MT759 messaging so users could exchange their documents in a digital format and link them to an underlying letter of credit – for both corporate-to-bank and bank-to-bank letters of credit. This quickly moved from pilot to a live service during the pandemic and is currently being offered free of charge.

In further removing friction from global trade, SWIFT has identified three areas where it can leverage its expertise: creating new digital standards to remove fragmentation; fostering interoperability to build an ecosystem of value-added services; and advocacy through working with other industry bodies such as the International Chamber of Commerce.

The report functions as a call to action to the industry. In its closing pages it states: “The stage is set for seismic shifts. What role will you play?”