Blog by Enno-Burghard Weitzel – SVP Strategy, Digitization and Business Development at Surecomp

The need for trade finance digitization has never been clearer. In today’s pandemic-ravaged landscape, banks face multiple challenges, including the legislative shift to digital trade documents and growing regulatory scrutiny, changing customer behaviour and increasing competition in the form of trade finance investment funds. In light of these challenges, it’s essential banks embrace the opportunities brought by digitization to deliver cost savings and efficiencies, but also to harness ecosystem interoperability and the opportunities for customer satisfaction, collaboration and growth.

We explore six key pain points in today’s rapidly evolving market:

  1. Regulatory scrutiny: In an ICC survey conducted last year, six out of ten bankers said they are extremely concerned about compliance, with specific concerns around Anti-Money Laundering (AML), Know Your Customer (KYC), Counter-Terrorist Financing (CTF) and sanctions. The challenge here is that regulators do not take a uniform approach, meaning that banks have to address disparate regulations across major markets as well as in local markets in which they have headquarters, subsidiaries or affiliates.
  2. Rising costs: For banks engaged in trade finance, economics are a considerable concern. Transaction costs are high, while fee income is low in an increasingly competitive marketplace. Compliance costs are rising due to the growing focus on KYC and AML – and while Basel IV is a regulatory concern, it also has economic implications with the potential to increase the cost of doing business for banks by up to 50%.
  3. Digital trade documents: The G7 digital and technology ministers recently committed to the digitization of international trade transactions, adding considerable impetus to the shift towards electronic transferable records in trade. With data issued last year showing that only 0.1% of bills of lading are issued electronically, it’s clear that there is much room for improvement. It is increasingly important for banks to have solutions in place that enable them to receive and process electronic records so that clients can make use of these instruments.
  4. Fintech engagement: While innovation is picking up speed, it is also posing additional challenges for banks. With fintechs developing myriad platforms to harness technologies like Distributed Ledger Technology (DLT), it’s essential for banks to be able to connect to the platforms used by their corporate customers. At this stage, however, there is no clarity about which of the systems currently being developed will eventually see widespread adoption.
  5. Customer demands: Corporate customers are also digital consumers whose experiences are being shaped by the convenience of consumer technology outside the office. Experiencing same day delivery in their personal lives means they are less willing to accept five days for a physical trade document in their professional lives.
  6. Competition: With interest rates remaining low in Europe and the US and rising levels of liquidity in the market, trade finance is becoming an increasingly interesting asset class. S&P estimates that as many as 20 specialist trade finance investment funds have emerged, bringing competitive pressure for banks, who have yet to devise a strategic counter plan.

So how can digitization help banks adapt and overcome these challenges?

Often banks’ IT infrastructures have evolved over many years, with different technologies in place to cover different countries of operation. These systems will each have their own licensing and support agreements – and as a result, the cost of maintaining the existing architecture can erode profitability in the business.

With a strong back-office solution the foundation of any digitization strategy, banks can leverage trade finance instruments while rationalizing their existing IT infrastructure. By moving all their operations onto a single platform, they can achieve significant cost savings and efficiencies. High levels of straight-through processing not only reduce the time involved in the manual rekeying of data between different systems but reduce operational and reputational risk.

Furthermore, enabling corporate clients to interact directly with their banks so they can manage their entire trade workflows – from application and issuance of an instrument to notification, settlement and electronic presentation of documents – means banks can better engage with their customers, provide great customer service and help them achieve the first step to full digitization of the entire workflow.

A key facilitator of change is collaboration. Surecomp – through our fintech Marketplace – works with multiple trade finance-focused solution providers to add value through API connectivity, assessing which APIs are needed to enable communication both with the external world, and with existing systems.

We continuously work with existing and prospective customers and partners on how best to solve market challenges – from the use of AI and machine learning in compliance checking to solutions that enable banks’ support teams to work more closely with customers through shared browsing and online chat capabilities.

Ultimately, trade transactions involve a multitude of different participants. Beyond solving specific pain points, there is huge benefit in bringing trade parties together on a single platform to add value and offer a true collaboration space.

Beyond solving specific pain points, there is huge benefit in bringing trade parties together on a single platform to add value and offer a true collaboration space.

Finally, cloud technology can help alleviate the cost of ownership when deploying a trade finance solution. Building the business case for investment can be difficult and may involve competing internally with another project. Surecomp’s Trade Finance-as-a-Service (TFaaS) is a scalable approach which enables us to handle infrastructure and application maintenance on behalf of banks, as well as incorporating regulatory updates. Instead of the high upfront costs associated with a traditional model, TFaaS enables banks to replace CapEx with OpEx, and align the cost of ownership of their trade finance solution directly to the revenue earned from the business.

In summary, today’s trade finance landscape presents key challenges for banks, but with years of experience as a dedicated trade finance vendor, Surecomp is committed to helping banks remain competitive and drive growth – not only by providing solutions that deliver cost savings and reduce operational risk, but also by harnessing customer and ecosystem collaboration.