Digital trade: the key to unlocking supply chain finance

Digitalisation as an ecosystem priority

Digitalisation is no longer a peripheral issue in trade finance. It is central to the future of banks, SMEs, fintechs, factors and the wider trade ecosystem. For organisations such as FCI and its partners, the question is how to continue building an ecosystem capable of reducing the barriers that still slow down global trade flows.

The answer lies in bringing parties closer together and ensuring that finance can reach every corner of the supply chain. That cannot be achieved through paper-based processes. It requires digitalisation.

Moving from paper to data

Paper remains one of the biggest obstacles in trade. It creates friction, increases the risk of fraud, and limits transparency. Only by shifting from paper to data can the industry unlock greater efficiency and expand access to finance throughout the supply chain.

At the European Bank for Reconstruction and Development, digital trade has become a major focus. Alongside other multilateral development bank partners, the EBRD participates in digitalisation working groups that meet regularly to identify both the opportunities and the challenges that need to be addressed collectively. Some of the most important challenges are legal.

Legal reform and the middle corridor

A key part of this work concerns the Model Law on Electronic Transferable Records, which provides a legal framework for the use of electronic trade documents. The EBRD has been working across its countries of operation to support implementation. Progress is being made in a number of markets, with Morocco and Turkey among those leading the way. Governments in Ukraine, Uzbekistan, Armenia, Tunisia and Kenya have also requested support with legal reform.

For the EBRD, these countries form part of a broad “middle corridor” of trade connectivity. While the term may traditionally be used more narrowly, the bank’s view of the corridor is expansive: it includes countries that trade with one another across the Mediterranean, the Caucasus, Central Asia and beyond. The objective is to ensure that no country is excluded from the digital transformation taking place in trade.

Legal reform, however, is only one part of the challenge. Digital trade must be viewed end to end. That means connecting the physical supply chain with the financial supply

chain. It requires work on logistics, transport systems, rail, road and ports, as well as collaboration with customs authorities.

Connecting the physical and financial supply chains

This is particularly important at border points. A trade flow can be digitalised from start to finish, but if it reaches customs and documents must be converted back into paper, much of the efficiency gained is lost. Customs systems need to be able to process and machine-read trade documents, rather than relying on manual review. Without that, digital trade cannot deliver its full value.

The benefits of a truly end-to-end digital trade system go beyond efficiency. They open the door to new forms of financing across the supply chain.

Unlocking finance earlier in the transaction

One useful concept is “atomic settlement”, a term often used by Professor Sarah Green. It does not refer to nuclear energy, but to the ability to deliver small payments or small pieces of financing at the precise point when a transaction becomes financeable.

In today’s trade finance model, funding often becomes available only once goods have moved through the supply chain and reached the end buyer. Digitalisation could change that. If the industry can gain real-time visibility over the movement of goods and the status of transactions, finance could be provided much earlier. It could reach a farmer in Kenya, a mining company in Uzbekistan, or another supplier at a critical point in the chain.

This matters because many businesses need funding long before the final buyer receives the goods. Digitalisation can provide the visibility and connectivity required to identify those financing opportunities and deliver capital when it is most needed.

The technology to enable this already exists. The International Chamber of Commerce’s joint venture testbed with Teesside University, for example, is demonstrating how connected logistics systems could support digital trade. Autonomous vehicles, satellites, LIDAR and sensors can be used to transmit data as containers pass through different points in the supply chain. That data can then feed into processing systems and potentially trigger payment obligations.

Such examples offer a glimpse of what the future of trade could look like: a world in which the physical movement of goods and the financial obligations attached to them are connected in real time.

Building the rails for digital trade

For multilateral development banks and industry bodies, the role is not necessarily to build every private-sector solution. Their role is to help create the rails on which those

solutions can operate. That means supporting policy reform, legal frameworks and infrastructure development.

The private sector can then build services and products on top of those rails.

This is why digitalisation is so important to the future of trade finance. It is not simply about replacing paper with electronic documents. It is about creating the legal, technological and operational infrastructure needed to make trade faster, safer, more transparent and more inclusive.

The ultimate goal is to unlock finance across the entire supply chain, not just at the final stage of a transaction. Achieving that will require collaboration between banks, fintechs, SMEs, governments, customs authorities, logistics providers and multilateral institutions.

The work is complex, and significant challenges remain. But the direction of travel is clear. By connecting the physical and financial supply chains through digitalisation, the industry has an opportunity to address one of its most persistent problems: the lack of access to finance for businesses that need it most.

Author:

Shona Tatchell

Director, EBRD