Banking on Technology: The business case for modernising trade finance

Digitalisation is an almost $2 trillion opportunity in trade finance and banks have a crucial role in this ecosystem. Many global banks, however, are still behind in digitally transforming their trade finance functions. What’s holding the industry back from accelerating its digital agenda? Here are some industry perspectives from a recent International Chamber of Commerce (ICC) Digital Trade Conference panel discussion.

Trade finance is an important part of global trade, but this is an industry that still relies heavily on paper and obsolete methods of doing business. The business case is clear – a digitised world of trade would drive trillions in new global trade flows. This would extend the benefits to businesses and communities around the world, especially those in developing regions.

There is now a concerted industry effort to accelerate the digitalisation agenda and the key message is to start today.

“It’s a learning process. Technology’s always going to be changing, but you’re never going to learn unless you start. Choose a trading partner, choose a bank, and start on this journey, said Carl Wegner, CEO of Contour. “Digitalisation is never going to be perfect, so the key thing is to start now,” he added.

Driving digital innovation also needs to come as a directive from the top. This impacts the culture of the organisation, which is crucial to driving change.

“The more you begin to drive new innovative technology at the executive level, you begin to see a changing culture, which will be to filter down to the middle and lower levels. I think that is very important. Once you have a good culture, adoption goes a lot easier,” said John Omoti, Vice President and Product Manager, Trade and Supply Finance at Bank of China.

Building the business case

HSBC believes that the primary business case comes down to giving clients the benefit of speed, simplicity and gains in working capital, which in turn drives trade volume.

“In a big way, the business case for the industry is the increased velocity of trade where our clients will be able to trade more,” added Venkatraman P, Global Product Head, Documentary Trade at HSBC.

“The second and the most important point that comes as a bank is being able to be more efficient with data and digitalization, and in fact, make our business safer, which means less errors, less frauds,” he said.

There are other considerations aside from technology spend when bankers are making the investment case.

“You have to make sure you’ve got the budgeting and resourcing to do that, as well as the business readiness to engage with customers to bring them along the journey. The other I would highlight is an agile approach,” said Merisa Lee Gimpel, Managing Director and Head of Working Capital Solution Development at Lloyds Banking Group who moderated the panel discussion.

Lee Gimpel also added that when it comes to proof of concepts and pilots, a bank needs to press the start button and scale quickly once a concept is successful.

Contour is living proof of this statement as it was first formed as a multi-bank project in 2018 and incorporated in 2020. Within a year, the platform transitioned from beta to production.

“Technology’s always going to be changing, but you’re never going to learn unless you start. Choose a trading partner, choose a bank, and start on this journey.”

– Carl Wegner, CEO, Contour

Establishing digital standards

When it comes to digitising trade at scale, the lack of standards is one obstacle the ICC is hoping to overcome through its Uniform Rules for Digital Trade Transactions (URDTT) and Digital Standards Initiative (DSI).

“ICC has taken a very wide approach to standardisation. The word I prefer is interoperability, which is a focus also of ICC DSI, how to make sure that new technology is being introduced, as well as the rules like URDTT are actually interoperable with the existing technologies,” said André Casterman, Founder & Managing Director of Casterman Advisory.

Contour’s Wegner added that where there’s new technology, there will always be legacy to deal with and the processes are difficult. Banks unfortunately, bear most of that burden but there is strength in collaboration.

“I think there’s also a better potential now for risk managers to maybe work together and understand how to manage these new data sets and new ways of managing data. In the past, every bank did it individually, maybe we can learn as a group,” said Wegner.

Ensuring an equitable future

It’s clear the future of trade and trade finance is digital. But whether it’s standardisation or collaboration, it is necessary to ensure that no region or country gets left behind in this digital adoption process.

“We need to ensure that the benefits of trade digitisation are equitably distributed through the supply chain, so not just the large businesses, but also the micro, small and medium-sized enterprises,” said Lloyds Banking Group’s Lee Gimpel.

Start digitising your trade workflows today. With full access to Contour’s network of corporates, banks and trading partners, you can perform Letter of Credit transactions that are digitised and automated in real time. Contact us to find out more.

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