Networks of networks, the future of Trade Financing

Financial institutions have long supported global trade by issuing letters of credit (LCs), financing trade flows and processing documents. Historically, these transactions have largely been paper based and required highly labor-intensive processes, but in recent years, technology platform vendors have entered the space, seeking to digitize document workflows and create more seamless trade transactions.

While technology has the power to transform trade finance, there is a problem with the current environment. The lack of interoperability between these platforms has resulted in siloed data and a complex and costly landscape to navigate, particularly for small- to mid-sized enterprises.

This is where the ICC comes in with the launch of the Digital Trade Standards Initiative, a cross-industry effort designed to standardize digital trade and encourage interoperability across networks and technology platforms.

“Universal standards will connect existing digital islands and enable market forces to improve the customer experience,” said ICC Secretary General John W.H. Denton AO.ⁱ

Movements like these, combined with increasing regulatory action, indicate that a stronger trade finance network is on the near horizon, something that will benefit financial institutions of all sizes. Here is how it will work.

Connecting digital islands in Trade Finance

While universal standards will help to improve the efficiency and functionality of trade finance for more players, Andre Casterman, Managing Director at Casterman Advisory and ITFA Board Member, believes that technology will be the driver when it comes to creating the level of interoperability sought by the ICC.

“The technology the world has devised over the last ten years around exchange of data, APIs and Digital Ledger Technology (DLT), is enabling us to address the horizontal interoperability, and get to a point of enabling parties to exchange data without being customers of one [platform] or another,” said Casterman in remarks made during Finastra’s “Networks of Networks: Tomorrow’s Trade Ecosystem” webinar.

APIs are a particularly important piece of the transformation puzzle for trade financing as they allow systems to share data and talk to each other, through a network approach. APIs are currently at work across the banking industry, propelling digitization efforts by connecting core systems to a variety of platform-based products. We’re now seeing this same integration within trade finance.

For example, Finastra is currently putting the network approach in action, through a partnership with Enigio, making it possible for financial institutions to replace time-consuming and expensive processes surrounding physical documents with a streamlined digital solution.

It starts by using digital ledger technology, where an authoritative digital file is created with a cryptographic audit trail. This allows the owner to securely hold legal rights. Digital documents also maintain the attributes of paper and can legally replace physical documents in many areas and geographies.

However, the current goal in trade finance digitization is to reshape the landscape. According to Louise Digby Taylor, responsible for trade strategy at SWIFT, speaking at Finastra’s Networks of Networks webinar, financial institutions should be looking at how modern technologies will fit within existing operations. Unless workflows and processes are improved, the financial institution will realize only marginal gains.

That’s why Finastra incorporated Enigio into the broader framework of the Fusion Trade Innovation Solution. Supply Chain Finance, compared to documentary Trade, is already further down the line of digitalization. An ICC survey found that sixty-four percent of global banks already offer a Supply Chain Financing platform, but only thirty-eight percent of regional banks and thirteen percent of local banks can say the same.ⁱⁱ Finastra Fusion Trade Innovation provides financial institutions with a total trade and supply chain finance solution, to accommodate banks and businesses of all sizes.

While Banks have increased trade finance revenues by 89% by automating and scaling their trade finance business with with Finastra’s Trade solutions, analysis suggests,ⁱⁱⁱ that the integration of Finastra and Enigio can also lead to an 82% reduction in tasks requiring manual intervention, a 91% reduction in processing and management costs and can cut processing time for a single document from 14 days to just a couple of hours.^iv

Network of networks, the future of Trade Finance

While APIs provide a seamless data flow between the bank and products on an individual platform, they can also be used to facilitate secure data transfer between each of the disparate trade finance platforms currently in operation, using what has been described as a network of networks approach.

“I like the “Network of Networks” concept,” said Ian MacLennan, Head of Trade and Supply Chain Finance, Finastra, in an interview with Nikhil Patel of Trade Finance Global. “And I think it truly has a chance to “kick off” or “kick on”. This could give customers a user experience that they have never had previously, incorporating multiple levels of information into a seamless view, irrespective of its documentation, logistical or another form of information.”

Using API-enabled networks, all participants in trade finance can be linked, layering new digital technologies on top of existing rails to improve the speed and efficiency of trade. By utilizing network solutions, banks can remain a trusted source of trade financing, offering a cost effective and trustworthy solution for businesses of all sizes.

_{ⁱ “Digital Trade Standards Initiative Launches Under the Umbrella of ICC.” International Chamber of Commerce. ICC News, Apr 3, 2020. Web.}

_{ⁱⁱ “2020 ICC Global Survey on TradeFinance.” ICC, 2020. Web.}

_{ⁱⁱⁱ “Fusion Trade Innovation.” Finastra. Retrieved from https://www.finastra.com/solutions/fusion-trade-innovation.}

_{^iv “Finastra Enigio Factsheet.” Finastra. Retrieved from https://www.fusionfabric.cloud/sites/default/files/files/2021-03/brochure_trace-original.pdf.}