Guest blog taken from an ICC webinar transcript

Trade finance digitalisation has long been hindered by the proliferation of firms and standards, resulting in myriad digital islands. So how can collaboration help to drive greater digitalisation and interoperability in this area?

These topics were recently explored during the ICC Global Finance Forum. In a session on ‘Multistakeholder Collaboration and Digitization in Trade Finance,’ Hannah Nguyen from ICC Digital Standards Initiative and Surecomp’s Enno-Burghard Weitzel discussed the opportunities offered by trade digitalisation, the current challenges and the importance of collaboration in moving the industry forward.

Common goals
Nguyen explained that the ICC Digital Standards Initiative seeks to tackle the issues of “multiple digital islands” that are preventing scale in trade digitalisation – a goal that is addressed by uniting industry stakeholders, private sector organisations, public sector and policy makers in the “common quest to promote policy coherence, but also harmonise standards for everyone everywhere.”

Speaking about the rationale for trade digitalisation, Weitzel explained that the top three goals for corporates are transparency, efficiency and risk reduction. For banks, meanwhile, the foremost topic is business growth. “Trade finance was always a core business for the banks – as opposed to corporates; their core business is building cars or producing chemical products,” he commented. “So for banks, the goal is growing the business through digitisation, along with efficiency and risk reduction.”

Identifying the opportunity
Turning to the macro perspective, Nguyen noted that a recent report from the Commonwealth Connectivity Agenda showed total benefits from paperless trade in Commonwealth nations could increase by as much as $1.2 trillion in the next five years if trade reaches full digitalisation, which is of considerable interest to governments and policymakers. In the meanwhile, she noted, governments are recognising the potential of electronic documents to make global trade more efficient, secure and resilient – “because we’re living in times of unexpected international events, such as the pandemic, shipping disruptions and of course times of conflict, which are all making this become more important.”

Weitzel pointed out that this $1.2 trillion opportunity would be even greater on a global scale and could exceed the size of the trade finance gap. Turning to consumers, he noted that current processes are inefficient, which translates to high costs. With a more efficient digitalised process, he argued, costs would go down and competition would drive down the price of trade finance instruments, ultimately leading to cheaper products for end consumers.

Bridging digital islands
Weitzel spoke about digitalisation, explaining that initiatives like the ICC’s are driving “tremendous improvements” in terms of pushing for the necessary framework. But he also pointed out that some other initiatives are “closed loop shops.”

For trade finance platforms that offer instruments like letters of credit, the interoperability challenge relates only to the technical challenge, “because they use products that are governed by international frameworks that we all know.” But for trade finance platforms that are generating new products, the interoperability challenge is twofold: “They need technical integration into the back system of the banks and the systems of corporates to enjoy efficiency. And to be widely adopted, they need everyone to adopt the framework of that product.” The role of Surecomp, Weitzel explained, is to leverage the existing banking network by developing a platform that can connect to these platforms and build bridges to some of these islands.

Digital rules for trade
So, are the current digital rules for trade sufficient? Nguyen observed that there are two angles to consider: the rules themselves, and the rules as they relate to business practices. She noted that the creation of the eUCP was intended to anticipate and enable the handling of letters of credit in the digital environment, although usage has been somewhat limited because of restrictions on the legal recognition of electronic transferable records in many jurisdictions. By working to commercialise these rules, she said the ICC is not only making sure that the rules stay relevant, but also that they have a conducive legal environment to operate in.

Weitzel argued that the UNCITRAL Model Law on Electronic Transferable Records (MLETR) is “the major initiative to enable moving away from paper” because it will bring legal equivalency between paper and digital instruments. But as the idea is technology-agnostic, all relevant parties will need to work together to implement the new rules in the most open way possible.

He cited the example of API harmonisation in the container space: different organisations had their own definition of what an API for an electronic bill of lading should look like, which resulted in competing standards. This was addressed by grassroots activity which resulted in the widespread adoption of the standard developed by the Digital Container Shipping Association (DCSA).

Co-operation and education
Nguyen spoke about the importance of public-private co-operation, which she said is “at the heart of everything we do at ICC, and particularly at the Digital Standards Initiative.” By putting trade practitioners in the same room as policymakers, she said, the ICC is not only facilitating a shared understanding, but also driving the capacity-building initiatives needed for trade to be effective.

Education is also an important consideration, and as such the DSI is partnering with the ICC Academy, the educational arm of the International Chamber of Commerce (ICC), to present an all-new Masterclass in Trade and Supply Chain Digitisation.

Looking forward to the next 12 months, Weitzel predicted that more collaboration is coming, together with a wider adoption of true digital solutions. Nguyen added that alongside collaboration, there are two more ‘Cs’ to look out for, namely convergence and choice. “We believe that with all the work people are doing […] we will be able to see a lot more convergence in this space – and at the same time, more choices for consumers and businesses as they want to go digital.”