Over the past 2-3 decades there have been many attempts to digitise parts of the trade and trade finance process, but it’s the complexity of trade that remains the challenge. Most successful attempts at digitisation have had to bite off a small piece of the problem and this has led to silos or what I call a ‘digital island’ phenomena.
We’ve seen four key solutions come to light over the years; multi-funder platforms, procure to pay networks, supply chain management networks and dynamic discounting platforms.
These solutions are converging. So while supply chain management networks and procure to pay networks push into financing and multi-funder solutions push into networks, it is not so easy for these different networks to migrate. The reality is that few of these networks communicate with each other and while we have seen expansive growth there are no clear winners.
However, I believe in the short-term we are likely to see the emergence of new networks that will connect these networks. What I like to term ‘networks of networks’ or ‘data aggregators’. These networks will act as a bridge, enabling corporates to control their data more effectively, their supply chain partners will have access to their relevant data which will allow transactions to be more seamless than today.
New developments facilitating change
In the banking space, a number of platforms that offer corporates an entry point to the integrated world of digital trade have already been announced, including Voltron, Marco Polo, and Trade Information Network (TIN). These efforts target specific areas of the supply chain but, crucially, have the element of interconnectivity that can make digital islands a thing of the past for corporates. By joining one platform, the potential exists to connect to another through their interoperability.
TIN is a good example of the future of integrated digital trade; a global utility established by leading trade banks, that is looking to create a data exchange between corporates and banks to enable financing in underserved market segments. It represents the first inclusive global multi-bank, multi-corporate network in trade finance, enabling corporates to submit purchase orders and invoices to the banking industry via the TIN aggregation platform.
Embed financing into ERPs and B2B platforms
Marco Polo is a banking consortium that sprang from a blockchain-enabled trade finance transaction delivered by logistics firm DHL and TradeIX. The receivable finance programme enabled the logistics company to help its customers extend their payment period while maintaining the company’s receivables at current terms. By using the TradeIX TIX platform powered by permission-based distributed ledger technology, DHL could have its invoices placed securely on the platform and benefit from real-time visibility to manage customer terms and credit risk.
The developments in this space allow financial institutions to look at ‘banking the ecosystem’ – moving beyond financing the suppliers of single large corporate clients, to understanding who the buyers and suppliers of those suppliers are and providing the relevant supply chain finance or receivables services further down the chain, with the large corporate as the anchor. By partnering with fintechs or established players like SAP, banks can offer supply chain financing far deeper in the trade ecosystem.
Digitisation of logistics and shipping
Digitising logistics enables corporates to gain greater visibility into the supply chain. Having this visibility allows them to then connect their logistics and shipping to their financing. Bolero and Essdocs are long established players in this market, working on providing digital shipping information, taking the bill of lading, for example, and making that purely electronic.
With an e-bill of lading at present only accepted in the US as a transferrable document of title, both of these companies rely on London rules and all parties being in the same ecosystem in order to transfer the bill of lading. This has worked to a certain extent in the bulk shipping space, but is less successful outside of this area.
New players like TradeLens, a blockchain-enabled shipping solution, aims to support information sharing and transparency in the global shipping industry. The goal is to digitise bill of lading data, allowing it to seamlessly move through the supply chain on the platform, replacing the inefficient paper processes.
Blockchain infrastructure for trade
Voltron, on R3’s Corda blockchain network, is set to be the market standard platform for trade infrastructure,
enabling corporate customers to connect with their banks and trading partners via a single channel, for both issuance of LCs and presentation/exchange of documents across an open network. In addition, trade documents produced on external networks by the supply chain partners of the corporate can be digitally sent, verified and processed in Voltron.
Blockchain infrastructure also offers the prospect of transforming the traditionally paper-intensive world of bank guarantees. Last year, Standard Chartered announced a collaboration with Siemens Financial Services, and TradeIX, to carry out a client pilot to create an end-to-end blockchain-based smart guarantees proposition in trade finance, fully digitising the entire process, from initiation of the bank guarantee to claim handling.
With access to more efficient and relevant data, supply chain finance will truly be an end-to-end financial solution with less risk but with more visibility; which is ultimately good news for the global economy, for jobs and for reducing the trade finance gap. This is going to take collaboration between corporates, fintechs, banks and other partners, a willingness to try things, and a willingness to stop things that don’t work – there has never been a better time for corporates to collaborate with banks and fintechs to future-proof their trade processes.
Read this full issue of Trade Finance Talks, free
This article was part of TFG’s third issue of Trade Finance Talks: Trade Wars & Tradetech, launched at Sibos 2019. This free issue gets into the detail of trade wars, trade flows and geopolitics, as well as looking at how digitisation and fintech is bridging the trade finance gap. You can read the full edition for free here.