Movement is gaining pace across the globe to reform the efficiency of trade and supply chain transactions which have traditionally relied so heavily on paper and manual processing. Leading the charge with a pivotal shift in legislation is the UK, Singapore and the US who have now all mandated that digital trade documents have the same legal standing as paper. However, despite its leading economy with a sophisticated banking infrastructure and booming hardware and electronics industries, Japan has been lagging in its adoption of software in this space, further hindered by the lack of regulatory standards and frameworks.
The Japanese trade finance sector – comprising both tier one mega banks and regional banks – is only now gradually embracing digital technology to streamline processes, reduce paperwork and improve efficiency. There are increasingly high expectations for banks to move away from the traditional corporate communication channels dominated by paper, fax and email to radically improve the service and value they deliver to their customers. It’s now being recognized that by using technology to link trade finance services to commercial distribution, they can leverage the power of digital to transform customer value and in turn their trade and supply chain. Shortening processing times through efficiency gains from tech adoption and breaking away from the high-cost structure caused by a dependence on paper-based manual workflow, will eventually lead the Japanese market to follow the lead of other G7 nations and digitize trade finance with full force.
There is already an increased focus on supply chain finance to optimize working capital and improve the overall efficiency of supply chains. This trend was driven by the need to enhance collaboration between various stakeholders in the supply chain and ensure smooth and timely transactions.
Japan is already placing a greater than expected emphasis on sustainable finance, with an increasing number of companies and financial institutions incorporating environmental, social, and governance (ESG) factors into their trade finance activities. This trend is in line with global sustainability goals and initiatives seen elsewhere in the world.
Regulatory developments are slowly shaping the trade finance landscape in Japan, with authorities focusing on enhancing transparency, mitigating risks, and ensuring compliance with international trade regulations. Compliance with regulatory standards such as those set by the International Chamber of Commerce (ICC) is gaining importance.
Japan’s potential trade finance market is huge, therefore the growth potential to be realized from efficiency gains is also huge. Trade volumes are already high, with Japan actively exploring new trade opportunities to diversify its trade portfolio and expand its global reach, particularly with emerging markets in Asia and Africa. This has involved the development of specialized trade finance products and services tailored to the needs of businesses engaging in trade with these regions. Although the majority of this business resides with the mega banks, regional banks are also playing an important role in supporting the SME corporate market and while transaction volumes may be lower, there is a shift towards SMEs trading more internationally to fuel future economic development, which the regional banks need to be ready to support.
Aside from trade and supply chain finance transaction processing efficiency, there is extended benefit of digitization from a risk and compliance perspective. Security, anti-money laundering (AML), and combating terrorism financing (CTF) along with the global rise in geopolitical risks, and the increasing sophistication of criminal methods and strengthening Trade Based Money Laundering checks (TBML) are all increasingly important.
While original paper-based trade finance still remains, regulatory bodies are starting to wake up and with the Model Law on Electronic Transferable Records (MLETR) legislation already in place across the G7 supporting the use of digital trade documents. It is surely only a matter of time before Japanese banks are reaping the rewards of easily deployed global standard solutions in their local language to assume their place at the top of the digital trade transformation tree in Asia.
Elsewhere on the continent, PT. Bank BTPN Tbk (Bank BTPN) – the first digital retail bank, one of the leading privately-owned banks in Indonesia and a subsidiary of the Japanese SMBC Group – is already using Surecomp’s DOKA™ solution to drive streamlined back-office trade finance processing automation. Bank BTPN has a large MNC customer base, along with a growing number of local and state-owned SMEs which have historically lacked trade and supply chain finance support. Primarily a commodities export market of palm oil and nickel, Indonesian companies working with Bank BTPN now benefit from a more efficient customer service supported by expedited processing of their growing trade finance requests in the form of Letters of Credit (LCs), documentary collections as well as trade loans.
The DOKA™ solution, which has replaced the bank’s previous trade finance application, is hosted in Jakarta and has been fully deployed and supported by Surecomp’s local teams in Asia. Through seamless integration with the bank’s other trade related systems for limits and position management, sanction screening, SWIFT connection, collateral management and core banking, Bank BTPN has future-proofed its trade finance business by partnering with Surecomp.
“Technology is evolving so rapidly that I don’t believe trade finance is a domain banks can afford to tackle on their own,” explains Intan Wijaya, Head of Transaction Banking and Supply Chain at Bank BTPN. “With so many parties involved, it commands collaboration, cooperation and partnership. It is important to be flexible and open to working with expert solution providers to act in the customers’ best interest. The Surecomp team demonstrated robust functionality, a deep understanding of our needs and built a trust upon which we can future-proof our trade finance business.”