By Graham Allen

The G7 pledge, earlier this year, has put trade finance digitisation firmly at the fore of trade & supply chain conversations.

Since 1984, I have been involved in trade and supply chain finance, with my time split equally between the Banking and Technology sectors. During this time, the world has moved rapidly towards digitisation in every sector, with technological advances continually providing smart solutions to the end consumer. For example, who uses cheques anymore? Since the onset of the pandemic, in the UK at least, the term “cashless society” has been frequently used. Indeed, I am a fervent Charlton Athletic football supporter and the club recently announced that they will no longer accept cash for tickets, refreshments or merchandise. Even their season ticket, which used to be a small book of paper tickets, is now a single plastic card with an NFC chip that fits neatly into the wallet.

For me, an obvious anomaly over these recent times is trade and the movement of goods not advancing in the same manner nor at the same pace as other sectors. Trade finance still mainly relies on outdated but trusted manual processes and lots of paper. This sector has not been inactive, but most banks have embarked on projects to enhance legacy systems only when needed and, for such events as regulatory changes, SWIFT Standards updates and similar.

For these expected changes the projects are sometimes complex, with months of planning, implementation, and testing, all resulting in little or no enhancement to the user or customer experience. Bank projects are never simple either. Take the SWIFT 2018 changes in trade. I know from my own experience that this was far from a straightforward exercise for banks and SWIFT 2021 is an even greater challenge. Due to concern from the banks, the updates were already delayed from 2019, and they are now further delayed due to the Pandemic. Will it go smoothly? That all depends on their clarity of vision and the skills in their project teams.

True, some banks are forging ahead with digitisation or are involved with consortium-led Blockchain / DLT projects, but these types of projects, though high profile, are not as widespread or inclusive as they could be. As a result, trade processing has not really changed within the banks, nor for their clients. Still, most transactions continue to call for complex sets of paper documents to be handled, involving a lot of manpower.

Admittedly, for many years whilst I was still in banking, I never questioned the inefficiencies of paper and the associated processes within banking nor within the wider trade ecosystem. However, I find it baffling now, given time and further experience, that the banking job I did 25 years ago seems in some banks, to be largely unchanged, even in these modern and challenging times. Why is it that trade is still dealing with wasteful reams of paper in the 21st Century, knowing it is neither economical nor environmentally friendly?

Given these manual processes, it is natural to wonder how ready were the banks at the onset of the pandemic for major disruption to trade and life in general? The answer is not at all. The somewhat technologically static situation with trade was severely tested with the onset of the Coronavirus (COVID-19) pandemic, as strict regulations were brought in around the globe, with more and more people forced to work from home, combined with restrictions on travel and the closure of borders.

Despite government reassurance that there were no supply chain issues, as people ravaged supermarket shelves in panic, trade was disrupted by the pandemic. According to the ONS the UK, Q2 2020 saw significant falls in both imports and exports, specifically in transportation and travel services, as well as falls in the exports of other business services, as compared with Q2 2019. With similar measures brought in around the world, global trade was affected similarly.

Adding to these stresses was the totally unexpected six-day blockade of the Suez Canal by the mega containership, Ever Given, a single event that caused a deepening of the ongoing global supply chain crisis following the onset of the pandemic.

Of course, digitisation could not have foreseen or prevented any of these near catastrophic events but digitisation would have meant that banks and the trade ecosystem could have reacted more quickly. What actually happened at the beginning of the lockdown period was that hybrid and temporary solutions were put in place so as to enable staff to work effectively from home

The pandemic and the plight of the “Ever Given” are massive and unprecedented events that impacted trade around the world and certainly contributed to the G7 heads of state announcing in June 2021, a pledge for the G7 countries to enable the digitisation of trade. In addition, the Law Commission of England and Wales has published a consultation paper on a proposed legislative reform to recognise electronic trade documents to have the same legal effects as paper documents. This step was very significant as it can and probably will guide other jurisdictions on their own ambitions for the digitisation of Trade and how it’s adopted.

That’s just the headline and yet there is currently little other detail from individual governments, though this will certainly change as further discussions are held over the coming months.

Given the complexity of trade and the industry spanning different economies, digitisation of ecosystems has traditionally been seen as too challenging and perhaps too costly. Yet digitisation seems inevitable (and may soon be mandated) and it has long been understood as a possible means to reduce overheads, costs, financial and operational risk, and even increase efficiency, among other things.

If I was a betting man I would say that in the next 10 years many banks will be digitised and in a much better position to navigate something like the disruption we are now seeing.

The (COVID-19) pandemic and Suez crisis showed the need for digitisation to be much more than this. These crises have shown digitisation is needed just to be able to keep supply chains flowing and to accommodate the need for workers to be able to work remotely. As in other industries, the pandemic accelerated digitisation in trade as the banks and the rest of the supply chain cobbled together hybrid digital/paper solutions to keep supply chains flowing. These adaptations were successful in keeping world economies fluid, for the most part.

The future will likely see some of the pandemic driven trends remain. Advancements such as automation of tasks and digitisation of documents will allow workers the opportunity to focus instead on high-value tasks, such as customer acquisition and servicing. These tasks can also be achieved remotely and away from the office, a trend that is continuing among workforces despite lockdowns lifting. This will surely save costs all-round through reduction of travel and office costs, in addition to the environmental benefits and work-life balance for the workforce.

It is clear that it’s not a question of “if” trade finance will digitise, it’s a question of “when”. There are many banks still operating totally paper-based and manual operations that will surely need to modernise their operating models through digitisation.

Of course, It is not only the banks who need to modernise, it’s the entire trading sector but the banks can be a leader and with hope, other trade partners such as freight forwarders and commodity trading companies may join the banks in trying to harmonise the procedures.

Quantum Six is a specialist Strategy & Transformation Banking consultancy providing independent, expert advice on technology-driven transformational change across core banking, payment initiatives and trade finance. Graham Allen, is a Quantum Six consultant with more than 25 years experience in banking and banking software. Each of our consultants have extensive knowledge and experience from within the banking and the financial software industries in planning and delivering solutions to the issues facing banks and their trade finance operations.  

To discuss your Trade Finance digitisation and digitalisation journey, get in touch.