RIP paper-based tools for trade finance
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RIP paper-based tools for trade finance

Businesses must embrace the digital revolution taking place in international trade.

Manoj Menon, Global head of trade services, innovation & customer proposition, RBS

Global trade finance’s old, paper-based processes are becoming obsolete with a host of new-world technology, standards and providers entering the fray. The move to electronic solutions speeds up processes, tightens security, cuts costs, reduces delays and improves working capital. To make it work, all stakeholders must make significant changes to ensure electronic information can flow freely between them. It’s a big move that takes time and costs money.

Buyers, suppliers, banks, shipping firms, insurance companies, surveyors and traders all need to focus on integrating their systems.

This involves adapting the technology used across the life of a trade – beyond the standard internet-based systems – to more direct and collaborative platforms that can bring it all together and accommodate different stakeholders.

The benefits are enormous and cover the whole process – from negotiating the contract to getting paid.

Businesses need to have a thorough understanding of the common technology standards – such as ISO20022, important for inter-operability – and multi-bank platforms available. They need to ensure they use the right products and IT partners for their needs, and can marry together the solutions that are best for them with the banks that can deliver.

Banks and external service providers are looking very closely at how they can electronically present original copies of the physical documents required, rather than in paper form, in trade transactions.

Making sure every party involved can exchange and access electronic documentation and data quickly and conveniently over e-platforms is a real challenge, particularly when buyers and sellers work with several banks.

Progress is being made. Global standards body the Society for Worldwide Interbank Financial Telecommunication (Swift) has introduced a new way for corporates to communicate with their banks electronically – regardless of their size. Traditionally, smaller companies had to communicate documents by fax or courier because they didn’t have the capacity to build their own electronic systems.

This new solution is a standard message type called MT798, a digital envelope which corporates can use to share financial instruments such as letters of credit and safekeeping receipts with their banks.

It means they can send detailed trade transaction information through the Swift network without having to use banks’ own platforms. This can have an immediate impact on large, multi-national companies which work with numerous banks for letters of credit.

Thirty five banks and at least eight corporates have adopted the MT798 standard already. According to Swift those companies include exporters and importers, some of which are using multi-bank solutions. But MT798 is still in its early stages and most businesses need to figure out how they can adopt it.

Unlike its predecessors, the standard supports FIN and FileAct messaging, which means large documents can be transferred electronically from corporates to banks for the first time. This is a real efficiency boost and will reduce the need for bulky files over time.

Independent, multi-bank platforms are the way ahead for bringing benefits across international trade. We are seeing more of these platforms, which include Bolero, Ariba, SAP Financial Services Network, and Electronic Shipping Solutions (ESS).

Such platforms eradicate bureaucracy. They give companies one place from which they can manage all their trade finance transactions and bank relationships electronically – sharing letters of credit, bank guarantees, presentations and other documents quickly and easily while exchanging data in a standardised format.

There are huge advantages from these platforms across the supply chain.

One example is being able to issue a bill of lading (BoL) electronically. A BoL is a document generated by a shipping company requiring the seller to release merchandise to a named party when it arrives at its destination.

In a paper-based system, this document is sometimes not ready when the ship arrives. This can delay the release of the goods and the buyer can incur additional costs on account of ‘demurrage’ – the charges charterers pay to ship owners for using the vessel for longer than expected. The shipping documents – including the BoL – have to be physically presented through banking channels.

However, an electronic BoL with supporting documents can be completed within an hour, rather than days, while a ‘four-corner’ presentation among buyer, seller and banks for an ocean cargo shipment can be completed in just a few days – all meaning the goods are released much sooner.

Electronic BoL is already proving popular in the oil and bulk commodity sectors where journey times can be short.

Banks were able to process BoLs electronically before through external, third party vendors. But it’s a laborious process because they have to on-board various stakeholders to their own platforms.

Tools like ESS and Bolero, which RBS has already used for transactions in Asia, mean it can be done far easier as it automatically uploads the BoL on to each stakeholder’s system. Bolero and ESS can also take existing, hard-copy documents and produce electronic versions of them – another direction the industry is heading in.

These are just some of the developments that prove paperless trading is fast becoming a reality. Its benefits will only be felt properly if all players embrace it and are smart about using the tools now available. It is happening but more needs to be done. Businesses and banks need to look at the merits of using multi-bank platforms or global standards to handle all documents digitally.

Those that don’t adapt to the future risk becoming relics of the past.


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