Digital makeover for documentation
Trade finance has traditionally been paper-based requiring document submissions in hard copy.
The International Chamber of Commerce has previously estimated that 4-billion documents move through the global trade system per day.
This makes it vulnerable to fraud, particularly as most trade agreements are complex, involving multiple parties, jurisdictions and banks. The challenge for trade finance providers is to ensure security, know who is involved, what is being financed, where the required documents and goods are and what value is involved.
Technology is playing in role in helping to prevent fraud. It’s also allowing for certain tasks to be automated while the growing use of application programming interfaces (APIs) is facilitating the exchange of data within the trade ecosystem.
In September 2023, the UK’s Electronic Trade Documents Act took effect, giving digital versions of important trade documents such as bills of lading, bills of exchange and promissory notes the same legal standing as their physical counterparts. Given that English law governs 80% of trade documents globally, the act has far-reaching consequences.
However, for businesses to benefit from digital trade will require that they are registered with the Legal Entity Identifier system, a global system established in 2014 to help banks simplify the process of verifying the identities of businesses involved in a trade transaction.
Digitalising bills of exchange and promissory notes is an opportunity for banks to connect these instruments to supply chain finance.
BOTTLENECKS
Technology, and AI in particular, is also being used by banks such as Investec to better understand the supply chain and identify where the bottlenecks reside.
Dr Greg Cline, head of corporate accounts at Investec Business Banking, says the bank is making significant investments into technology to enhance its ability to access third-party data to enable it to advise on, for example, more efficient freight rates. “In an increasingly competitive environment characterised by increased costs, in-depth knowledge will be key to establishing better freight rates for clients,” says Cline.