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Digitising Trade Finance

For decades, trade finance has been connecting the world by facilitating cross-border trade transactions. With technological innovation on the rise, sometimes it is quite difficult to believe that trade finance still relies heavily on the presentation of paper documentation and manual processing. Whilst there have been some technological changes, such as the adoption of Bank Payment Obligations (BPO), technological innovation in other areas of trade finance have not quite been embraced the same way.

Having worked on projects that involve reviewing trade documentation, we have had to request our clients to re-scan paper documentation on to bank systems to ensure data quality will not be compromised. Asides from the fact that using a paper system is error-prone, it is also time consuming and expensive. A bank employee has had the mundane task of scanning a large number of documents page-by-page on to the bank’s systems, often involving scanning three copies of the same items. From the customer’s perspective, posting the original trade documents will also take at least a day, if not more, to reach their financiers, effectively slowing down how long it could take to get a decision from the bank. Even more worryingly, the documents could also get lost in transit! Whilst moving to an digitised trade system would solve these problems, it is not without its complications, and hence the reason financial institutions have been reluctant to adopt this approach.

It is interesting because the banking sector's approach to dealing with clients claims to do right by the customer. It is on the basis of this very notion that banks invest in technology that facilitate ease and speed for its customers. As such, we have seen the digitisation of retail banking to the point that branch banking today is a service that is almost only exploited when a transaction cannot be carried out online or is too complex to be carried out online. Similarly, the Global Trade Review reported that traders/customers are keen to conduct business digitally, encouraging a move away from paper trade documentation. So, this begs the question, ‘why has it taken so long for financial institutions to embrace the digitisation of trade finance?’

Well, it has been promising to see that since last year, the trade finance sector seems to be warming up to the idea of digitising trade finance processes. In November 2016, HSBC completed its first digital trade transaction with one of its clients in India. The process involved the digital presentation of Letters of Credit through Bolero’s digital platform and saw the trade transaction settled in one day as opposed to the typical fifteen days.

As illustrated in the above example, digitising trade transactions increases efficiency, allows for documentation to be received and assessed faster and ultimately it cuts costs for both the bank and the customer. For banks, the digitisation of trade would mean incurring cost for the implementation of e-trade systems to facilitate electronic documentation and undeniably, its execution has lagged. However, for a shift from paper trade documentation to be successful, all parties involved in the transaction chain must embrace the vision and drive digitisation; from the counter party’s bank, the shippers through to the customs authorities.

Collaboration will be the key to growth within this area.

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