Data and trade finance: the complex challenges of a reinvention
The submission to the French government on June, 29 2023 of the Paris Europlace report entitled “Accelerating the digitisation of international trade finance” (1) shows, if proof were still needed, the extent to which the subject of data and trade finance is at once a problem, an ambition and a revolution.
We welcome this remarkable work, which, in addition to the leading role played by Societe Generale2 underscores the need to adopt the provisions of the MLETR3 (Model Law on Electronic Transferable Records) in France. It also shows how large-scale dematerialisation of trade finance activities would boost competitiveness for French companies and the Paris financial centre. Finally, this work demonstrates France’s desire to be a driving force in the debate on the trade finance industry.
As we know, despite the undeniable progress made by the use of digital tools, international trade finance remains a world marked by an excessive number of paper documents to be examined and exchanged. Processes and procedures remain archaic, because they are essentially manual, like administrative formalities, which involve an equally significant number of players who do not use the same digital channels… Overall, the Trade ecosystem is a jumble, which, despite having been somewhat simplified as a result of the digital revolution, still constitutes a sort of “Tower of Babel”, acting as a structural brake on contemporary and justifiable ambitions to speed up and clarify flows.
Target of 100% dematerialisation by 2030?
The dematerialisation of documents will lead to automation of processing, and thereby generate productivity gains as well as reducing processing times and operational risks. The objective, shared in particular by trade associations, is to digitise 100% of trade finance documents by 2030.
At the end of 2023, at least eight countries will have transposed the provisions of MLETR into their national law, and ICC (International Chamber of Commerce) expected that around 100 countries will have adopted it by the end of 2026. This should greatly facilitate trade between these countries, provided that players in these countries have the capacity to integrate this new disruptive, 100% digital model.
Once this data is available in electronic format, several questions arise. How do you exchange it? Should we move towards a single standard? Are advances in interoperability necessarily a prerequisite for electronic exchanges? These questions are far from clear. This is borne out by our discussions with major groups in global trade, international banks, as well as with the ICC, which show that at this stage, few players, overall, seem prepared to adopt a format/standard of exchange (via secure exchanges, i.e.blockchain).
This is mainly due to the IT budgets already significantly allocated to digitising documents, recognising and classifying data in documents and processing it.
The standardisation of international trade finance data and exchange formats, along the lines of the Swift system, would ensure a degree of uniformity… but how many years would it take?
Acceleration through AI
Aside from considerations relating to the trade finance ecosystem, trade finance banks are moving forward on data at a speed that depends on the financial and human resources they are willing and able to devote to it.
Of course, banks each have their own information systems that integrate data on these trade finance transactions (back-office system, accounting system, risk system, compliance system). Societe Generale has been aware for several years of the need to be able to cross-reference its data from the various systems. This involves several stages: extracting data and assessing its relevance, using storage tools (datalakes) and transforming the data.
Document review and data classification will be facilitated by artificial intelligence, which can learn to recognise recurring data. We have already been using it for several years in compliance screening in particular.
Finally, at the end of the processing chain, we need to take into account the format in which the data is returned, both internally for management and reporting purposes, and externally for our clients.
Indeed, our responsibility as bankers aims to respond to our clients' pressing need for an overview of the status of outstanding transactions with the bank and the progress of their new requests.
AI is now showing us that the more precise the conditions of a request, the more relevant and rapid the response. It is this qualification/harmonisation of the starting data that we must aim for. It is a taxonomy issue, in other words, we need to be able to think (or rethink?) our universe with a universal language.
Finally, this requires new skills, a change in culture to know how to identify key data and prioritise investment in these areas.
As we can see, data and trade finance is a complex issue, because it affects national cultures and is therefore multi-factorial.
What about the emergence of new factors? Digitisation may also paradoxically exclude certain countries that are less likely than others to incorporate these many changes into their model. In particular, the investment involved in the digital transformation could discourage them. We are dealing with an economic parameter where the country concerned could be excluded due to a lack of resources and also of will.
And what about geopolitical or even ideological parameters? As the Swift system clearly showed at the outbreak of war in Ukraine, full digitisation makes it much easier for institutions to exclude entities that contravene global rules. In other words, this new 100% digital dimension of trade could also hinder the adoption of trade finance standards by so-called “difficult” countries.
Finally, and above all, although it is the subject of a consensus, how will this new entirely digital environment be welcomed within the front-to-back teams in companies and banks that, for several decades, have always considered paper documents? Training will obviously play a key role in the success of the new ecosystem.
Globalisation and fragmentation, the issues surrounding data and trade finance raise new and exciting dialectical challenges...
- Paris-Europlace / ICC report on the digitisation of trade financel
- See Appendix 3, p. 87 of the report “List of members of the Paris Europlace working group”
- Model Law on Electronic Transferable Records see UNCITRAL MLETR