Digitising trade finance is notoriously difficult because of the lack of harmonisation, and technology gaps. But Felix Meyer and Petra Hunjet-Moison at ABB Limited, the corporate treasury arm of Switzerland’s industrial conglomerate ABB Group, say they have made a leap forward in export trade digitisation at the company following a process-led technology implementation.

Meyer, who leads Treasury Technology and Hunjet Moison, Global Head, Export and Trade Finance, tell Treasury Today how a new export trade finance solution that centralises an element of ABB’s trade finance operation and introduces a new wave of digitisation in hitherto manual processes is proving transformative.

Export trade finance at ABB spans typical trade finance activities, concentrated mainly on guarantees and letters of credit alongside managing various accounts receivable and supply chain finance programmes.

“In addition, we arrange financing with our banks so that our customers can buy ABB products,” explains Hunjet-Moison. Overseeing thousands of performance guarantees, often with unique characteristics, is perhaps the most challenging aspect. Issued by banks and insurance companies (in markets like the US) these guarantees promise that ABB Group will fulfil its underlying contract to customers, acting like a traditional warranty on any purchase.

Meyer and Hunjet Moison’s treasury overhaul has focused in this corner of export and trade finance particularly. ABB has just finished rolling out new processes and architecture to support how it issues performance guarantees, digitising and standardising these trade instruments. The new processes digitise all requests for performance guarantees automatically via one system with full visibility at a central level.

To date, workflows and reports from some 80 countries have been onboarded and around 27,000 guarantees have been migrated in seven waves from more than 100 banks and insurance companies.

Under the new system, a central treasury team now requests that banks and insurance companies which issue guarantees on its behalf use either Swift or a web enabled interface. “Our main goal was to automate and use Swift to automatically process the guarantees as the standard,” explains Hunjet-Moison, who says that the process had to use two channels so it could cater to guarantee providers unable to tap into Swift.

“Insurance companies issuing performance guarantees and some of the banks in remote locations are not on Swift,” she explains. “We needed an alternative whereby this cohort could log onto our system and take care of all the correspondence without a paper trail. We wanted to get rid of manual, fragmented processes.”

Standardising Swift processes for trade finance with existing Swift standards was a particularly knotty process. “Swift and market participants have traditionally left discussions on trade finance message standardisation off to the side, favouring instead standardisation strides in the payment sphere through its ISO 20022 migration,” Meyer states. “As a result, every bank has quite a bit of leverage regarding how the contents of their message are organised. This has pushed the burden to the vendor and corporate to ensure proper message preparation and interpretation.”

The ABB team had to analyse these specifications per bank in a time-pressured process that also involved negotiating a raft of Swift agreements.

“We discovered that the negotiation process for SCORE agreements – even as addendums to existing payment agreements – was quite time and resource intensive. On the implementation side, although Swift MT 798 format and the larger MT 7xx message family provide a multi-bank message structure for import/export guarantees and standby letters of credit, the format leaves ample room for flexibility and bank-specific specifications,” says Meyer who chairs Swift Corporate Group Switzerland (SCG-CH), which lobbies the payments giant on behalf of treasury teams for the country’s largest corporates.

The next challenge came in moving the data from the legacy solution, including transformation and data cleansing elements. The documentation-heavy nature of trade finance contracts also required that attachments were correctly linked to the underlying guarantee or surety.

“We had 27,000 guarantees which equates to tons of documents to move over. It’s difficult to get some messages imported into our system but we did well. We had under 4% of failed records!” said Hunjet-Moison. She attributes much of the success to clever IT colleagues running a BOT to ensure speed, precision and repeatability of the migration and extensive clean-up activities prior to migration.

The overhaul was completed in a tight timeline that included extensive testing for the trade instruments with all the banking counterparts. This involved organising the transfer of credit lines between legacy and new systems and enabling implementation of standardised approval levels across all markets, like India, where the team had multiple approval levels.

“Now, all ABB internal approval levels for guarantees, no matter what country, are the same,” she says. “Local guarantee and letters of credit systems used in some countries have been discontinued.” The transformation was carried out by around 15 staff with different business, technical and legal skills.

ABB’s overhaul began in 2021 when it issued an RFP to explore the best providers in the market. In the end, Meyer and the team decided to procure an off-the-shelf solution that enables small, minimal customisations.

“Moving to a software-as-a-service (SaaS) solution offered many advantages from a technology and hosting perspective. Despite pushing us to move to a more standardised solution with limited flexibility, the supplier agreed to make some customisations that benefitted the larger user base” he said. “We hope to see a return on investment in two years.”

ABB is already planning how to continue its digitisation journey, building on both its new processes and technology. One ongoing initiative targets more centralisation of operations to better support customers, ultimately boosting and facilitating sales. For example, technology driven initiatives include tighter integration with TMS and accounting systems for the purpose of payment automation for fees, still a highly manual process.