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Season 1, Episode 69

Host: Deepesh Patel, Editor, Trade Finance Global

Featuring:  Louise Taylor-Digby, Head of Trade Strategy, SWIFT

World trade is central to economic growth and as we emerge from the pandemic, trade is paramount in enabling the global economy to recover.  Is the time really now, for digitising trade, and how can advance the dialogue to reduce friction, costs and risk?

We’ve discussed trade digitisation and its many facets for some time now, but the pandemic has now rendered this critical, potentially a tipping point for scalable progress in digitisation.

But it’s not easy. Digitising a complex ecosystem involving myriad actors, rules and regulations, sprawled across both physical and financial supply chains in multiple countries and industries is a challenge.

Overview of SWIFT

SWIFT is how the world moves value every day, across over 200 countries through trade, payments, FX and securities connecting over 11,000 institutions and 4 billion underlying accounts within those institutions. In addition to SWIFT’s core objective of enabling efficient communications for the financial world, SWIFT also have a suite of value-added services around the platform like a global KYC registry, data analytics propositions and financial crime solutions. However, it’s not just about having a technology platform to pass. 

Furthermore, SWIFT plays a leading role in standardisation. There’s an awful lot of effort that goes into bringing the financial services community together at global, regional and local levels to shape market practices, to define standards and define rulebooks. SWIFT remains a neutral infrastructure provider, helping the industry to innovate and to deploy new solutions. 

Lastly, SWIFT have a history of working with third-party partners, for instance, the newly announced SWIFT certified application providers and, most recently SWIFT’s partnership with MonetaGo partners to create the first-ever global solution to duplicate financing fraud.

SWIFT’s objectives are very simple to enable frictionless transactions and foster a collaborative platform for new ideas to thrive.

Impact of Covid-19 on global trade: redefinition of strategy and business models

SWIFT plays a very specific role in global trade focusing on the documentary credit suite of structures and solutions – this includes Letters of Credit (LC), bank guarantees and documentary collections.

2020 saw a significant decrease in documentary trade, however, corporate-to-bank digitization of documentary trade, often referred to as MT 798 grew over 70%. Therefore, overall documentary trade has gone down yet this desire for corporates to digitise their bank interactions has significantly surged. 

Another point to divergence to the pre-pandemic industry is the way in which SWIFT saw documentary trade recover through the course of 2020. There were weeks where LC volumes and values were down double digits, particularly around April 2020, as the pandemic started to bite globally. Nevertheless, documentary credit made a phenomenal recovery ending 2020 on par with the year before.

Regionally, a lot of that recovery was driven by the Asia Pacific with Asia increasing its share in global LC values. More broadly, there was widespread disruption across the board, in the form of:

  • economic and geopolitical disruptions
  • demand and supply chain shocks
  • labour disruptions
  • supply chain disruptions,

In turn, these supply chain disruptions served as a catalyst for digital disruption and, consequently resulted in the redefinition of business models and strategy. This demand for increased digitisation was not solely driven by banks, but also by corporates and governments. As corporates now view supply chain resiliency, as a matter of business continuity management, as well as the digitization opportunities that go alongside that. Governments around the world have tried to enable frictionless trade through legislative reform, for example. 

The pandemic, exacerbated the paper friction in global trade, as global trade is underpinned by 4 billion pieces of paper. Another contributing factor was the exponential increase in frauds, which led to regulatory calls to move away from the paper. A great example of the repercussions of the pandemic is shown by the fact that over 90% of supply chain executives declared that they were actively taking steps to make their supply chains more resilient. 

Has global trade finally reached the point where it simply must become predominantly digital?

Louise Taylor-Digby would say yes. The benefits of having predominantly digital trade have been well documented: reduction in processing days, unlocking billions of dollars of efficiency savings, just to name a few. However, societal benefits are often overlooked. The ability to digitise trade has the potential to unlock richer data allowing banks to do better KYC, to do a better credit risk analysis, as well as, enabling banks to extend more finance to SMEs and to corporates, who are likely to need it the most when facing the road to recovery post-pandemic. 

SWIFT’s new strategy

SWIFT’s new strategy, outlined in a newly released trade whitepaper, ”Digitising trade – the time is now”,  revolves around a few key areas. Firstly, through common standards, identity, and security protocols SWIFT aims to increase collaboration with trusted third-party partners and secondly to leverage its new API platform to foster interoperability between thousands of banks and corporates in over 200 countries and territories and help create a rich ecosystem of value-added services. SWIFT is working with MonetaGo to pilot a Trade Finance Validation solution via SWIFT’s global API platform. This is particularly beneficial for banks and corporates as they can benefit from the trusted single identity and security protocols that characterise SWIFT’s API platform.

Another solution created by SWIFT as a result of the pandemic

FileAct: freely available for banks and swift connected corporates to help them move trade documents all over the world in seconds for free. A single secure channel for large files of structured messages, operational data or reports

Banks, corporates, actors in the trade ecosystem are faced with significant legal uncertainty, particularly as it pertains to documents of title, therefore, the need for legal harmonisation is significant.

It is not relevant what technology we use to tackle this issue If there is no legal certainty. The need for legal harmonisation is paramount and SWIFT is delighted to see the adoption of MLETR, the United Nations Model of Electronic Transferable Records.

Standards and interoperability go hand in hand. Louise Taylor-Digby expressed her belief that is simply not feasible for one to expect the world’s importer, exporters, shippers and banks to all be on one platform. As a result, whatever the solution is to digitization it will have to be interoperable.

Technology is not the most significant issue, there are a lot of technologies out there today, both new technologies and old technologies that can transfer documents and can help solve for identity. However, without that legal harmonisation, without an agreement on how to interoperate across this ecosystem, what language to use and what data components are going to be most important, it will remain a real challenge.

What is next for SWIFT?

These are busy times for SWIFT, with their own ISO 20022 program aiming to move the global community to a richer data dictionary and a new platform launching in 2022 aiming to enable instant and frictionless end-to-end transaction management and provide the community with a common set of transaction processing services. 

Additionally, SWIFT have its platform partnership programme, where it is collaborating with a range of different technology providers and fintechs to grow an ecosystem of truly innovative third party services for the benefit of the community. Furthermore, SWIFT also possesses an API platform that provides SWIFT with the ability to drive and execute new and innovative ideas. 

Though historically SWIFT have been very much focused on documentary credits, moving forward SWIFT will shift directions and become more agnostic to financing and aiming to create an ecosystem of trade services around the SWIFT platform. 

Perhaps the most challenging aspect of SWIFT’s vision is the dematerialisation of the 4 billion pieces of paper currently in use. How does the community operationalize that? How do you implement that? What does it look like?

Lastly, SWIFT is working closely with the ICC to create standardised catalogues of trade based APIs and will, additionally,l continue to look at what new value-added services it can bring to the community.

The challenges have been laid out and the benefits highlighted, now is the time to digitise.