EACT Summit 2019: Digitisation of Treasury, Revolution in Trade Finance

by Eleanor Hill, TMI

Presenters

  • Jacques Levet, Head of Transaction Banking EMEA, BNP Paribas 

  • Robert Barnes, CEO, TradeIX

 

Talking about a revolution: digitising trade finance

Banks and fintechs are working together to change the way trade finance transactions take place, speeding up physical-, financial-, and information flows – through the use of technology to digitise and automate processes, as well as create new ecosystems. The idea behind this collaboration is to address longstanding trade finance pain points which slow down the supply chain such as:

  • A lack of standards and interoperability. Trade data sits in different systems and in different formats, making it tough for corporates and banks to seamlessly exchange the relevant data. This can also lead to valuable trade data becoming trapped.

  • Errors, omissions and compliance issues. Any mistakes that enter the value chain, and incidents such as compliance false positives, generates manual work which impedes the flow of data and funds – and is also tedious, thereby impacting employee morale.

  • Large pools of trade assets not accessible for funding. Because of lack of complete visibility over trade data, a significant number of trade assets may be sitting on the balance sheet without being financed. 

Banks and fintechs are working together to look to create a frictionless, zero-interaction, model for trade finance – within a secure, real-time, digital environment. New technologies are assisting in the journey towards this utopian environment.

Optical character recognition (OCR), for example, is one of the main tools that is helping to digitise paper documents. OCR recognises typed or printed text and converts it into machine readable digital text. This can then be turned into metadata. Add in some artificial intelligence (AI) and machine learning (ML) and it is possible to analyse this digital data for historical patterns – in combination with current data pulled in from other sources, such as weather forecasts – to create accurate future predictions around trade flows, both physical and/or financial. 

Arguably the most revolutionary technology being deployed in the trade finance space today, however is distributed ledger technology (DLT), which many will hear referred to as ‘blockchain’. DLT offers the potential to remove some of the ‘middlemen’ that tend to complicate trade and cause some of the issues flagged above. With the distributed ledger, it is possible to create privacy between yourself and a supplier and guarantee the authenticity of the trade transaction.
The risk here, however, is that this privacy ends up creating ‘digital islands’. This would lead back to some of the same challenges as before, such as trade data being hidden. Instead, the solution could lie in an industry-wide initiative that converges the physical, information and financial supply chains with an optimised use of digital trade data to enable easier access to credit, enhanced risk mitigation, increased transparency and automation – all on a global digital platform.

One example of such an initiative is Marco Polo. Launched in 2017, Marco Polo is a trade finance platform built on an interoperable business network powered by open Application Programming Interfaces (APIs) and blockchain technology. It involves the world’s foremost financial institutions and is supported by enterprise technology firms TradeIX and R3.

For treasurers, the benefits include access to broader funding providers (banks and non-banks) by enabling seamless, secure, high velocity trade financing options. It also offers an asset-agnostic trade finance engine that supports the entire asset lifecycle for corporates from origination, to distribution and settlement. In addition, it provides a highly-connected platform that can accelerate corporate growth by improving working capital – and can be plugged into the corporate’s ERP.

While other networks with similar objectives exist (we.trade being a well-known example) the overriding sense here is that trade finance stands on the cusp of a revolution. And by working together to leverage new technologies and create digital trade ecosystems, the industry will be able to make trade smarter and more transparent – which will deliver benefits for all parties.

Key takeaways

  • The inefficiencies in trade finance often result from legacy, manual, paper-based processes, as well as a lack of standards and interoperability. This leads to trapped trade data, errors in workflows, and unfinanced trade assets sitting on the balance sheet.

  • Through collaborative efforts, banks and fintechs are looking to create a model for trade finance, which will address these pain points by leveraging technology such as AI. 

  • DLT arguably holds the most significant potential to revolutionise trade finance, removing unnecessary parties from transactions, as well as bringing together the physical, information and financial supply chains to enable easier access to credit, enhanced risk mitigation, increased transparency and automation, via a global digital platform.