VIDEO | The race to digitise Asian trade finance has hit a wall, and it’s made of data law

In a fractured digital landscape, no two financial institutions are alike. 

Banks are rushing to upgrade their digital networks in a hunt for more and more data: ground is being broken on data centres bigger than 150 football fields, and artificial intelligence (AI) looks to transform manual processes. But in the world of trade finance, paper persists. 

It is this fractured landscape that makes trade quite so difficult. No matter how advanced or how much investment an institution pours into data development, the pace of the pack is the speed of the slowest. 

Trade Finance Global (TFG) recently hosted the inaugural TFG Singapore, where they sat down with Josh Williams, Head of Commercial, Asia Pacific at Surecomp, to discuss the next steps in digitalisation, the regional barriers to digital exchange, and the future architecture of trade finance. 

Digitalisation requires some leapfrogging

In Asia, digital banking rests in a sea of individual agreements. 

The Association of Southeast Asian Nations (ASEAN) connects the National Single Windows (NSWs) of all 10 ASEAN Member States, facilitating electronic document exchanges. South Korea and Singapore cooperate digitally via the Korea-Singapore Digital Partnership Agreement (KSDPA). The Pan-Asian e-Commerce Alliance (PAA) connects China and Japan with their southern neighbours.  

The region lacks a unifying platform, regulation, or a standardised operating system – the likes of which are crucial for facilitating international transactions. This fractured landscape creates a time gap between buyers and sellers; it can take days, if not weeks and months, to transfer paper documents. 

The lack of operability presents a particular challenge for the market to respond to international volatility. The oil price volatility of the last few months, following the effective closure of the Strait of Hormuz earlier this year, has made quick responses critical. The ability to set prices, assess risks, and access financing before energy prices change is crucial. 

In a region like Singapore, the fragmented digital landscape creates a bottleneck, precisely because they are a global trade hub. Although Singapore can partner with trade hubs such as the UK, UAE, or China to share digitalised documents, most of the traffic that enters Singapore ultimately moves on to another destination. That puts a limit on digitisation. Most electronic documents (e-documents) eventually have to be converted into paper bills before their destination. 

That is why getting countries and corporations to adopt digitalisation at scale is essential. It is the efficiency savings between buyers and sellers that are changing the game. 

Digitalisation has the greatest efficiencies in speed and in shifting transactions away from time-consuming, manually intensive processing, Williams explained. “Technology helps you speed transactions up and do it with the right controls and governance in place.”

One important aspect of digital technology is that it comes in leaps and bounds. That means, with the right financing, banks and corporates with outdated trade platforms can modernise quickly. 

For smaller-scale organisations, this looks like upgrading outdated trade platforms. But for Tier-1 financial institutions, innovation is all about going broader: both in terms of the corporate clients they oversee, and the geographies they cover, Williams emphasised. 

Cloudy with a chance of localised data

Asian corporates face real challenges in navigating strict data compliance laws, many of which revolve around the cloud. 

Data localisation refers to national policies that require citizens’ data to be stored in their home territory. Data, increasingly seen as a valuable national resource linked to privacy and security concerns, must be stored in servers physically within the country of origin. 

A related phenomenon known as data sovereignty, led by the US, allows countries to use localisation rules to limit and manage cross-border data flows. 

This is a particularly foggy area for trade finance digitisation, which relies on shared data pools. In South-East Asia, Malaysia, Indonesia, and Vietnam all have data localisation laws that limit the transfer of important information, including medical and financial records. 

The gains from using the cloud to optimise cost and operating efficiencies are offset by the additional administrative labour it requires. 

Cloud coverage is snowed under in these agreements. The ASEAN Agreement on Electronic Commerce does not specifically mention cloud services, which often rely on third-party servers located internationally.

Indeed, data-sovereignty regulations can be cause for a rain check. “Regulations can be prohibitive to having a cloud-based solution if the cloud isn’t based in your geography,” explained Williams.

Although every cloud has a silver lining, Article 7 of the ASEAN Agreement on Electronic Commerce prohibits member states from requiring domestic data centres as a prerequisite for in-country commerce; still, it’s unclear how this integrates with national data protection laws.

The new world of APIs

That is where application programming interfaces (APIs) come into fruition.

APIs allow institutions, fintechs, and infrastructure players to share capabilities through secure, standardised interfaces. That enables ‘stackable’ technology, allowing different players to build on specific aspects of a financial transaction. From the physical digitalisation process to risk assessment and liquidity prediction models, it’s all within the same blockchain infrastructure. 

Open banking APIs offered by financial institutions grew by 200% between 2020 and 2023,, and are set to continue growing. 

“The future is about the connectivity of multiple platforms and multiple ecosystems that are working together intelligently,” said Williams. 

The biggest advantage in this shift from legacy financial structures is enabling “niche players to solve niche problems,” he continued. 

For big banks, the shift is no longer towards providing all of the financial services corporates require. Instead, the race is to build the ecosystem, the API, through which multiple partners and players can come together. 

—

The speed at which technology advances has its pros and cons. On one hand, the growth of digital trade instruments provides incentive for financial innovation. On the other hand, there is an incentive for corporates to delay investment in upgraded systems, as long as they believe the pace of innovation will outpace the incentive to make minor upgrades. 

In other words, they are better off sticking with an old system until the cost of upgrading becomes cheaper and the technology improves further. 

However, that is exactly where API systems shine. With the ability to ‘stack’ technology like Lego blocks, corporations can shift towards the basic infrastructure, and then upgrade one block at a time, as needed. APIs may also offer a solution to strict data protection laws, allowing national corporations and banks to implement the latest international software for risk assessment or cash-flow calculations, while using local and regional data servers. 

Whether this will lead to greater fragmentation or an effective, efficient global trading system remains to be seen.