Trade finance faces digital challenge
Given the standardization and interoperability challenges facing digital letters of credit, could wider use of digital trade finance platforms accelerate the development of alternative solutions?
The majority of the work being done in the digital trade finance space is focused on digitizing letters of credit. For example, earlier this year Finnish technology group Wärtsilä participated in a co-creation project aimed at digitizing the export letter of credit process with SEB as the advising bank.
Handling letters of credit requires human input to ensure proper interpretation of terminology and the detection of discrepancies as it is all about releasing payment and mitigating the risks associated with it observes Wärtsilä’s corporate treasurer, Jarmo Nurmi.
“This creates so much complexity and dependency that it is difficult to gain traction for digitalization,” he says. “All documents in the value and logistics chain should also be available in digital format and immediately delivered when created. But there are so many parties that need to become digitally enabled for this – not forgetting the need for standardization across all possible document types that are relevant for presentation against the letter of credit.”
The letter of credit is still a widely used trade finance instrument
According to Nurmi, the benefits from digitization might not be enough to justify the cost of implementing systems able to handle digital letters of credit and the presentation of digitized documents.