The digital trade revolution
With the trade finance space digitising across the entire supply chain, corporates and banks now have the tools to co-create solutions that solve real trade problems.
The complex nature of international trade has seen corporates challenged by inefficiencies in their processes and a lack of visibility across their supply chains. Most successful attempts at digitisation in the trade arena have only been able to tackle one small piece of the problem, without solving for the bigger picture. The challenge with these developments is that they have been disjointed, creating ‘digital islands’ rather than optimising the entire value chain.
The key to accelerating global trade is therefore to solve the digital island problem. We are poised to see the emergence of a new ‘network of networks’ – data aggregators that will connect individual trade platforms. The interoperability that these networks offer will provide corporates with a single point of entry to digital global trade, and most importantly, they offer a way to simplify the trade environment for corporates, while enhancing process efficiency and providing visibility into the end-to-end supply chain in a way that has never been possible before.
Market developments enabling change
In the banking space, a number of platforms that offer corporates an entry point to the integrated world of digital trade have already been announced, including Voltron, Marco Polo, and Trade Information Network (TIN). These efforts target specific areas of the supply chain but, crucially, have the element of interconnectivity that can make digital islands a thing of the past for corporates. By joining one platform, the potential exists to connect to another through their interoperability.
TIN is a good example of the future of integrated digital trade; a global utility established by leading trade banks, that is looking to create a data exchange between corporates and banks to enable financing in underserved market segments. It represents the first inclusive global multi-bank, multi-corporate network in trade finance, enabling corporates to submit purchase orders and invoices to the banking industry via the TIN aggregation platform.
Embed financing into ERPs and B2B platforms
Marco Polo is a banking consortium that sprang from a blockchain-enabled trade finance transaction delivered by logistics firm DHL and TradeIX. The receivable finance programme enabled the logistics company to help its customers extend their payment period while maintaining the company’s receivables at current terms. By using the TradeIX TIX platform powered by permission-based distributed ledger technology, DHL could have its invoices placed securely on the platform and benefit from real-time visibility to manage customer terms and credit risk.
The developments in this space allow financial institutions to look at ‘banking the ecosystem’ – moving beyond financing the suppliers of single large corporate clients, to understanding who the buyers and suppliers of those suppliers are and providing the relevant supply chain finance or receivables services further down the chain, with the large corporate as the anchor. By partnering with fintechs or established players like SAP, banks can offer supply chain financing far deeper in the trade ecosystem.
Digitisation of logistics and shipping
Digitising logistics enables corporates to gain greater visibility into the supply chain. Having this visibility allows them to then connect their logistics and shipping to their financing. Bolero and Essdocs are long established players in this market, working on providing digital shipping information, taking the bill of lading, for example, and making that purely electronic.
With an e-bill of lading at present only accepted in the US as a transferrable document of title, both of these companies rely on London rules and all parties being in the same ecosystem in order to transfer the bill of lading. This has worked to a certain extent in the bulk shipping space, but is less successful outside of this area.
New players like TradeLens, a blockchain-enabled shipping solution, aims to support information sharing and transparency in the global shipping industry. The goal is to digitise bill of lading data, allowing it to seamlessly move through the supply chain on the platform, replacing the inefficient paper processes.
Blockchain infrastructure for trade
Voltron, on R3’s Corda blockchain network, is set to be the market standard platform for trade infrastructure, enabling corporate customers to connect with their banks and trading partners via a single channel, for both issuance of LCs and presentation/exchange of documents across an open network. In addition, trade documents produced on external networks by the supply chain partners of the corporate can be digitally sent, verified and processed in Voltron.
Blockchain infrastructure also offers the prospect of transforming the traditionally paper-intensive world of bank guarantees. Last year, Standard Chartered announced a collaboration with Siemens Financial Services, and TradeIX, to carry out a client pilot to create an end-to-end blockchain-based smart guarantees proposition in trade finance, fully digitising the entire process, from initiation of the bank guarantee to claim handling.
Co-creating solutions to specific trade problems
As industry-wide data aggregators and interoperable networks reshape the global trade landscape, bringing efficiencies and visibility across the end-to-end corporate supply chain, there has never been a better time for corporates to collaborate with banks and fintechs to future-proof their trade processes.