The future of trade digitisation

With India aiming to become a $5-trillion economy, digitising trade to create a more efficient and cost-effective system will be crucial

The pandemic presented the international trade community with an unprecedented and volatile situation in which conditions changed daily. The health crisis magnified the friction and inefficiencies caused by the paper-based nature of trade. In many countries, the basic delivery of physical documents was challenged by lockdowns, giving rise to delays, uncertainty, and further costs.

From reduced shipping capacity reacting to the initial shocks in demand to increasing staffing pressures arising from quarantine and social distancing measures, all these further complicated matters. By late April 2020, documentary trade finance substantially declined by as much as 49 per cent on a weekly basis, as documented by SWIFT Watch. Even as e-commerce surged, and countries reopened, businesses were faced with reduced capacity and rapidly increasing freight costs, adding to supply chain fragilities.

This unique situation called for digitising commerce across the spectrum, with companies quickly pivoting their processes, modes of communication and even revenue models for business continuity. C-suite executives were quick to respond to the need of the hour. However, 75 per cent of them admitted to using digital channels for the first time, with the intent of continuing this practice even after things get back to “normal”, as stated by McKinsey’s global study of executives.

Banks quickly invested in digital solutions such as intelligent document recognition, replacing wet-ink signatures with e-signatures and implementing electronic bank guarantees to provide a smooth and seamless trade finance experience to the community. However, for trade to be truly digitised, there are larger challenges that need to be addressed.

Important physical instruments such as bill of lading or bill of exchange are crucial to any trade transaction for delivery of goods or receiving payments. Such transferable documents serve to give the holder certain legal rights. However, in certain jurisdictions, laws may not accept the possession of the electronic version of these documents, as it raises questions about their authenticity, safety, and the number of copies that could exist.

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In trade transactions, there are several banks involved, sometimes from multiple countries. Each bank has its own set of requirements to report trade transaction data, and making this process even more complex are the compliances that need to be adhered to for each country involved. This process is laden with challenges and the potential for inaccuracies or incorrect data entered is high with manual entries, many a time resulting in delays in processing a transaction and ultimately leading to losses incurred by the parties involved.

The multiple authorities and parties involved are making several efforts, including leveraging emerging technologies such as artificial intelligence, internet-of-things, and machine learning. It has resulted in numerous trade digital platforms with different processes, workflows, actors, functionalities and data existing on multiple platforms, making it challenging to access data easily and efficiently.

Digitisation will not only ensure supply-chain resilience but will also prove to be cost-effective for both corporates as well as financial institutions by removing inefficiencies in the system. It is imperative to create a trusted trade ecosystem that is secure, through harmonised legislative reforms, with standards that foster interoperability and address challenges such as friction and fragmentation. Moreover, by leveraging emerging technologies such as application programming interface, it should allow for newer value-added services for banks and corporates, while also automating and integrating end-to-end transactions.

With India aiming to become a $5-trillion economy, digitising trade to create a more collaborative, efficient and cost-effective system will be crucial to achieving this goal. Moreover, it will prepare the country for any unique situation such as the current pandemic, but also allow the commerce community to thrive and scale.  

The writer is chief executive officer and regional head (India and South Asia), SWIFT