Digitalisation in trade finance: all together now
As collaboration appears to be the way forward for the digitalisation of trade finance, FX-MM’s Paul Golden explores how the success of new relationships and technologies is set to determine the speed with which these solutions become ubiquitous…
Greenwich Associates’ 2016 European large corporate trade finance study notes that with few opportunities to differentiate themselves on the basis of product functionality or quality, banks are looking to reduce the cost of servicing clients by automating trade finance processes.
According to the research authors, companies that move too slowly to make their treasury operations compatible with digital trade finance systems, may end up paying extra fees. They observe that digital platforms also enable trade finance products and services, to better link with other products such as cash management and FX, allowing corporates to benefit from a more solution-oriented working capital management offering.
While pointing out that only a small number of the largest European corporates have taken the steps required to move to digital trade finance, the Greenwich Associates’ study also recognises that regional banks and providers in certain countries have yet to begin implementing digital capabilities because their mid-sized and smaller corporate clients are not yet ready to start using them.
Michael Vrontamitis, Chair of the International Chamber of Commerce (ICC) Banking Commission’s digitalisation working group, suggests that more can be done to improve awareness of digitalisation and to encourage banks and corporates to become involved, and that incentives to collaborate on digital platforms will also be important.
Competition from fintechs is at least partly responsible for greater enthusiasm among financial institutions towards digital trade finance, admits Hari Janakiraman, Head of Trade Product Transaction Banking at ANZ.
“An increasing number of fintechs are entering this space and financial institutions need to adapt quickly to compete,” he says. “We are also witnessing financial institutions investing directly in technology companies as well as embarking on organisation-wide agendas to digitalise products and processes.”
Shona Tatchell, Head of Innovation for Trade & Working Capital at Barclays Corporate Banking, says the majority of financial institutions would welcome a move to dematerialised documents as they would potentially reduce costs, processing time, errors, and the risk of financial crime, while increasing visibility and transparency.
“The major barrier has been that, until now, the technology solutions have not enabled efficient interoperability across different platforms, owing to: a lack of data and technical standards; a silo-ed and competitive approach by centralised platform providers; difficult legacy technology infrastructure within most of the established banks; and legal uncertainty around the enforceability of electronic documents,” she says.
A collaborative approach
With the focus now shifting to digitalisation of non-bank processes and dematerialisation of trade documentation, Huny Garg, Head of Trade and Supply Chain at SWIFT, says a collaborative approach for digitalisation will help speed up the journey.
“Whether it is adoption of existing options, or emerging supply chain solutions based on smart contracts or distributed ledgers, banks will need to eventually invest in standardised systems that are interoperable across banks, countries, and industries,” he says. “As more banks digitalise and corporates face the challenge of dealing with multiple banks, I expect bank agnostic digital channels to lead the way in fostering competition for core trade products and services.”