The growing importance of supporting global supply chains and international trade

Digitisation is not simply a trend, but a singularly disrupting change to the way trade and working capital finance operates. Anastasia McAlpine (pictured), Head of Product, Trade & Supply Chain Finance, Finastra explains whyMany banks have had significant challenges in supporting their services through traditional banking processes. For example, difficulties in accessing original paper documentation during the COVID-19 pandemic with lockdowns and quarantines and dealing with a ‘new normal’ of dynamic workplaces. With the pandemic acting as a catalyst and providing a true turning point for the trade finance industry, we are seeing the push for greater digitalisation of global trade and working capital finance gathering further momentum.

Despite the disruptions and setbacks, trade has already recovered to above its pre-pandemic peak following the resurgence of global economic activity in the first half of 2021, according to WTO. And world trade volumes are expected to grow 10.8% in 2021[1].

It is time for banks to expand their business in a more digital and agile way, accessing new products, channels, platforms, customers, geographies and sectors through innovative solutions and services delivered at speed. The industry is moving towards cost-effective, open and digital-first integrated solutions that are able to easily provide new value-added services to customers.

Recognising the importance of digitalisation in trade

There has been a resurgence of regulatory standards that bridge the gap between digitalisation and trade finance processes. We now see exciting momentum towards the paperless digital reality. This year, the G7 endorsed digital trade with the aim of establishing a comprehensive framework for collaboration.

This will strengthen the resilience of the global economic system and play a crucial role in trade recovery across the G7 region. The question now is how effectively the trade finance industry can navigate its way through all the initiatives that are underway, and how it can move forward into the new era of global trade.

The biggest challenges in adoption and scalability for digital trade

Apart from legal and regulatory challenges, another barrier is presented by closed technology platforms. As Andre Casterman, Managing Director of Casterman Advisory and Board Member of ITFA, recently noted: “Many are still in this mindset of the 20th century, where their platform is the centre of the world. And those closed platforms have failed to scale, mainly because of their narrow view in terms of embracing a global opportunity around digitisation.”

It is important to focus on digitisation at source through an ecosystem and digital channels that are integrated in a smooth, coherent and logical fashion. A trade and supply chain finance ecosystem enabled through open APIs can help remove the cost and complexity of connecting to current and future multibank platforms, fintech services and digital channels for transaction digitisation.

Casterman added: “Consider the analogy of the internet, which everybody uses, but that is accessed via numerous communications channels, browsers and devices across multiple countries with different regulatory frameworks. SWIFT is there, and so we can reuse it. The back-office systems like Finastra are there, let’s reuse them as well. There are many new SME financing platforms that will also need those technologies. Let’s enable them to connect and leverage those technologies to the full.”

Interoperability between systems and networks is key and modern frameworks are going to help enable that.

Finally, the momentum towards digital trade finance that has been created during the pandemic should be leveraged by everyone in the industry – whether you are an SME, a multinational corporate, or a bank.