DESPITE all the exciting chatter around technologies such as distributed ledger and artificial intelligence, their application in trade finance services is still lagging within some banks. That’s according to the International Chamber of Commerce’s (ICC) recent global survey on trade finance which found that there was disparity between global banks and local banks when having a digital strategy for trade finance.
According to the ICC survey, 83% of global banks had some form of digital strategy on trade finance compared to only 46% for local banks, showcasing the lack of uniform adaptation of electronic methods. Overall, physical paper-based processes continued to play a significant role in the whole trade finance process, with 64% of bank respondents reporting that digital documentary trade transactions were between 0%-10% of overall trade transactions. In contrast, a mere 11% highlighted that they were receiving more than half of their trade documents digitally.
Banks nevertheless have attempted to eliminate physical paper for their trade finance processes with global trade finance banks such as HSBC and Standard Chartered executing cross-border letter of credit transactions based on blockchain networks for several clients already.
Though these initial transactions are a step in the right direction for the overall industry, they still represent the minority of trade finance transactions and are actually not the main focus of banks when looking to digitalize trade finance processes. As the ICC survey reveals, the majority (55%) of banks surveyed sought to create online platforms instead to make it easier to request trade financing services, as opposed to 22% looking at distributed ledger technology such as blockchain.
When it comes to barriers to trade finance digitization, most banks cited legacy systems and the pains of building internal capabilities. In fact, the ICC survey reveals that 80% of banks had spent or were planning to spend up to $10 million on developing digital trade finance solutions.
With trade finance digitization seemly still having a long way to go, the benefits on embarking on such a journey cannot be overlooked with better overall client experience and cost reductions just some of the main positive considerations when investing in technology. Already, most banks (80%) had saved up to 10% in cost savings due to trade digitization efforts, according to ICC data.