Attempts to digitalize trade processes have a chequered history, with several high-profile consortia and initiatives having failed to live up to expectations for various reasons.
The result is that complex global supply chains still typically outsource processes to third parties, particularly for cross-border imports, which is paper-intensive and time-consuming.
Tackling this is the great challenge for today’s trade-finance banks. The winner of this year’s award for the world’s best trade finance bank, Bank of America, has created a new solution – Open Account Automation – which automates and digitises the procure-to-pay process from end to end, improving the time to match and approve an invoice from weeks to as little as seconds.
The buyer sets matching rules and parameters in CashPro and submits the purchase order, which flows through to the supplier. The supplier ships the goods and uploads the invoice to the Kanexa platform, which was developed from the liquidation of blockchain trade-finance venture Marco Polo Network. Data is extracted and fed into the matching process. Once matched, the approved invoice flows through CashPro to the platform and can be paid after any automated discrepancy resolution.
Shortlisted
- HSBC
- JPMorgan
“The end state of this platform is a new way to do trade finance,” Geoff Brady, head of global trade and supply-chain finance in Global Transaction Services (GTS) at BofA, tells Euromoney.
Open Account Automation is the first module of the bank’s multi-year initiative to digitize trade finance through new platform CashPro Supply Chain Solutions. The firm says it is setting up an ecosystem that is scalable.
“Trade finance is all just a receivable,” says Brady. “The goal is to have fewer products, not more. This allows us to build transformational technology.”
The fact that these processes can be digitized at all shows how far the industry has come.
“This is a very paper-intensive business and the path to digitization is fraught with hurdles,” points out Brady. “It needs the interdependency of the banks.”
Open Account Automation would not have been possible four years ago.
“We are stitching the data together that is trapped in the system,” explains Duncan Lodge, global head of supply chain finance, Europe, Middle East and Africa and head of trade and supply-chain finance product at BofA.
Once suppliers have been digitally onboarded, they get access to real-time data on their invoices. Buyers can set automated rules for approval and automated discrepancy resolution. Payment can then be automatically disbursed on invoice maturity.
BofA announced the platform at Sibos in October last year, and it went live with a white-label client recently. The pilot enabled the client to convert a 100% paper-based process into a 100% digital procure-to-pay process. The client has already moved the majority of its suppliers onto the platform and is now in the process of on-boarding the final few.
The goal is to have fewer products, not more. This allows us to build transformational technology
Geoff Brady
Based on results from the live pilot programme, the straight-through processing rate reached 96%, with more than 1,400 invoices automatically matched and processed for payment without manual intervention between October and December 2023.
Using a blockchain solution to connect buyers and sellers has always been a goal for trade finance because distributed-ledger technology leaves such a rich audit trail.
Early initiatives such as the Contour consortium have disappointed because of the difficulties in scaling a system that involved so many different banks.
The CashPro Supply Chain Solutions platform is a central hub that everyone plugs in to, which reduces friction.
BofA argues that because of the number of global corporations that sit in the US and are banked by it, the firm is the natural driver of a platform such as this. “We bring connectivity to a vastly overproportioned number of corporations in the universe because they sit in the US,” says Brady. “In some cases, we support 80% or more of a buyer client’s supplier base through our commercial-banking and business-banking franchises.”
It is true that having CashPro as an existing gateway is a huge advantage. It is very easy to connect the new platform to existing rails because it is already plumbed in. If existing clients are already using CashPro for onboarding then Open Account Automation can be pushed out to them through CashPro as well.
“Nobody has greater connectivity to US corporate franchises than Bank of America,” says Lodge. “We are their path into US corporates.”
It wasn’t all about Open Account Automation, however, and the firm was successful in driving digital engagement for trade operations across CashPro as well.
Last year, three new clients were onboarded to the trade receivable finance module on CashPro Trade, and five more are in the process of on-boarding. E-signature capabilities are now available in more than 50 jurisdictions globally. BofA is a direct member of the SHCPE NewGen Draft System, which manages electronic renminbi commercial drafts and has established connectivity to Tips, a local electronic tax payment system by People’s Bank of China that allows corporate clients to pay taxes electronically.
CashPro has broadened its supply-chain finance capabilities with the launch of a supply-chain finance variant in India and connectivity to supply-chain finance service providers there and in Mexico.
