Trade Finance: everyone needs but no-one wants a revolution in trade finance (7th October 2020)

Trade finance is one of the biggest and simplest of banking businesses, but also one of the oldest. It’s working practices remain archaic. Documentation is paper-based and the adoption of standards is patchy and slow. The result is higher levels of manual processing and lower levels of automation than in most financial markets. The manifold inefficiencies of trade finance have attracted technology vendors for more than 20 years. They are now joined by a horde of FinTechs which also see opportunities to cut the wastage of money and time, mitigate operational risk and accelerate the sourcing of finance and the payment of invoices. But a combination of bank resistance to change, plus the dependence of the benefits on network effects, are slowing progress down. This Future of Finance panel asks how it can be speeded up.

Archaeologists have traced trade finance back to as early as 3,000 BC, which is about the time ancient Egypt becomes a recognisable political entity. Trade financiers are not using papyrus, but they are still using a lot of paper instead of digital documents. Take-up of standards such as the SWIFT MT 798 message, the Bank Payment Obligation (BPO) transaction matching document and even electronic bills of lading is patchy and slow. As a result, there is more manual and less automatic processing in trade finance than in most financial markets. National and international regulators have added equally manual Know Your Client (KYC), Anti-Money Laundering (AML), sanctions screening and Countering the Financing of Terrorism (CFT) checks on counterparty banks and their clients, enforced by the threat of heavy fines, that are so onerous banks are shrinking their networks, especially in emerging markets. Which is why established technology vendors as well as FinTechs see lavish opportunities to reduce the wastage of time and money, cut the operational risk of a surfeit of manual procedures and speed up transaction processing and client and counterparty on-boarding and monitoring in trade finance. The technologies required to achieve these goals – the Internet, the Cloud, artificial intelligence (AI) and machine learning and Application Programme Interfaces (APIs) – are neither experimental nor revolutionary. Corporate treasurers are excited by the potential benefits in terms of cash flow and working capital costs. Yet adoption of new technologies and better methods is slow, thanks to resistance in various parts of a complex global eco-system that now spans not just banks and corporates but insurers and reinsurers, public sector credit agencies, forfeiters and factors, customs officials and fund managers. Smaller trading firms and freight companies cannot afford to invest in new technologies, unionised public sector officials are concerned that the use of better technology will lead to job losses, and banks fret that efficiency will cut their margins and loosen their relationships with their corporate clients. But the biggest obstacle to greater efficiency in trade finance is not conservative market participants. It is network effects. Unless every market participant adopts new methods, none has the incentive to invest in them alone. This is not a new problem. It is one every ambitious digital marketplace confronts, and it has been solved. So how can it be solved in the case of trade finance?

Topics of discussion include:

– What are the documentation problems that need fixing in trade finance?
– What impact have new service providers had on documentation problems?
– What impact have trade finance trading platforms had on the trade finance market?
– Why is uptake of digital technology in trade finance so slow?
– What can trade finance learn from the experience of other markets that have digitised successfully?
– What is the opportunity for banks in digitised trade finance?
– Is there anything regulators can do to help?

The Panel:

TradeIX (Marco Polo): Daniel Cotti – Managing Director https://www.linkedin.com/in/danielcotti/

Bolero: Jacco de Jong – Global Head of Sales https://www.linkedin.com/in/jacco-de-jong-b401b91/

Pole Star: Simon Ring – Global Head of Regulatory Technologies https://www.linkedin.com/in/simon-ring-acss-612993…

GKB Ventures: Gabriel Buck – Founder and Managing Director https://www.linkedin.com/in/gabriel-buck-b4001848/

JCB: Philip Bouverat – Director Global External Affairs https://www.linkedin.com/in/philip-bouverat-6306b7…

Moderated by: Dominic Hobson – Co-Founder Future of Finance https://www.linkedin.com/in/dominic-hobson-49b8222…

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