Ben Singh-Jarrold: ICC’s Rethinking Trade Report 2017 – Digital Trade March Gathers Pace

Blogs are the author’s own opinion and not necessarily representative of Misys or the World Trade Board.

The go-to ‘State of the Industry’ report in trade finance was published in July by the ICC Banking Commission and the World Trade Board and the Symposium were highlighted as driving forces in the digitisation of trade finance and for their focus on supporting sustainability goals related to international trade. This report marks a noticeable shift from years gone by. As we move into the age of the industrial internet, where dematerialisation and the march to digitisation is a given in the world of trade and trade finance, and where there is an increased understanding of the full range of possibilities offered by Supply Chain Finance (SCF) in this connected environment, the future looks bright.

The trend towards open account trade will not stop. The impact of regulation and compliance continues to impinge on financial institutions’ ability to finance Micro, Small and Medium Sized Businesses around the world. 61% of banks still report more demand than supply for trade finance. The report further explores what drives the $1.6trillion financing gap which the Asian Development Bank has been tracking over the last few years.

So what’s changed?

Well, the glaring facts from the report tell us that the greatest potential for bank revenue growth (an estimated 4.7% on average globally according to Boston Consulting Group) and a shift in the way trade is financed will be driven by SCF and digital technologies. Around 68% of respondents highlighted these two areas as beacons for growth.

38% state that growth and evolution in the financing of international trade will come from supply chain finance (SCF). We are seeing the first wave of digitised and online trade solutions helping banks to realise their revenue potential and this will continue as the digital embrace tightens. 30% of respondents say so.

In addition 44% of banks identified priorities linked to digitisation and technology, including Fintech and emerging platform propositions, as priority areas of strategic focus. I highlight strategic because it mirrors what we have seen in conversation with trade finance banks in the last 12months – banks are looking at the entire ecosystem of trade and finance to assess how digitisation must move beyond the walls of the bank to go deeper into corporate supply chains, to expand across the entire trading lifecycle and touch all the participants along the way. This is key for banks that want to capture opportunities in open account, the restructuring of global trade as it pivots to the East, and 350million businesses (of all sizes) going online in the next 5 years.

Doing nothing is not an option

In the report, David Hennah and I cover this in more detail noting that doing nothing with regards to the digitisation of trade finance is no longer an option. The article considers the notion of a “digital trade bank”, how it might impact a trade finance business, observing that a leading trade bank estimated potential annual savings of USD 50 million in undertaking material digitisation of its trade business.

The elimination of paper from trade finance transaction processing could reduce throughput time by two hours per transaction, and the judicious application of technology to compliance-related processes and procedures could conservatively reduce compliance costs by 30% or more in the trade banking business.

In line with ICC initiatives the article also discuss the positive impact on sustainability that moving from paper to digital transaction processing can deliver – a key theme of the World Trade Symposium 2017.

We have now reached a point where the emphasis has shifted away from the negative influence of compliance mandates towards the positive potential of digital technologies, providing a strong platform for trade to re-establish its pre-eminent role in the global economy.

The next step of the Working Groups emanating from the World Trade Symposium and chaired by board members will be to feed into the discussion now taking place around the standards for trade finance digitisation with a view to supporting adoption, both of tried and tested technologies that improve paperless trade processes, as well as emerging technologies like DLT.

Watch this space.