In the global trade arena, the need for digitisation is widely understood. “The current process for trade is notoriously paper-heavy, manual and iterative,” explains Peter Jameson, head of Asia Pacific Trade and Supply Chain Finance, Global Transaction Services at Bank of America. “Digitisation can help treasurers create simpler workflows, track flows of goods and funds in real time, and make smarter financing and funding decisions based on available data.”
While various initiatives have been attempted over the years, these have tended to create digital islands that fall short of digitising the industry in any meaningful way. But with numerous industry initiatives under way, not to mention the opportunities brought by emerging technologies, could trade finance digitisation finally be an achievable prospect?
Why digitise trade?
Given the costs, delays and potential for error associated with traditional processes, everyone in the trade ecosystem stands to benefit from greater digitisation. Indeed, the abundance of paper and the lack of common standards can sometimes mean that the paperwork related to a transaction is still being processed days after the actual goods have arrived – particularly when it comes to trade finance instruments such as guarantees and letters of credit (LCs).
“In a digital process, a guarantee can be issued within minutes, rather than days,” says Enno-Burghard Weitzel, SVP Strategy, Digitization and Business Development at Surecomp. “And documents under an LC can be reviewed within hours rather than days.” In addition, with participants able to access full transparency over the status of the transaction, “such instant feedback allows corporates much better planning and greater reliability.”
Beyond the ability to speed up individual transactions, digitisation also has the potential to improve the resilience of global trade on a much wider scale. “Digitisation – in other words, not having to rely on physically moving pieces of paper around the world to support the movement of critical goods – makes global supply chains and trade more robust, more reliable and less prone to shocks,” says Steven Beck, Head of Trade & Supply Chain Finance at Asian Development Bank.
Beck explains that digitisation could drive numerous improvements throughout the trade ecosystem, which includes exporters, shippers, ports, customs, warehousing/logistics, finance and importers. “Digitisation would reduce costs, lowering barriers to entry for SMEs. It would drive higher productivity – and it would also drive transparency, thereby improving environmental and social safeguards while reducing trade-based money laundering,” he says.
In addition, he notes, digitisation has the potential to create metadata that can support the closing of trade finance gaps by providing “granular information on risks including credit risk, performance risk and money laundering risk.”