The future facing the trade finance data universe
Digitisation and data have been the mantra of trade finance experts and consultants for several years now. In this article we set out to address the central issues currently facing the data universe.
Current landscape: a love of islands
A great deal has been said about what should be done in order for the trade finance sector to enter the data era. The question we plan to discuss here is how this trend can be best accelerated.
Even the most cursory review of the current landscape shows a preponderance of islands of effective usage of data rather than anything remotely resembling a global business model.
Multiple data-driven initiatives have developed in an attempt to optimise transparency and the efficiency of physical flows within supply chains. These include: the digitisation of shipping companies (for example, Tradelens, GSBN and Ant-Cosco) and the digitisation of ports (for example, Rotterdam’s initiative with the world’s first automated terminal, Barcelona with an internet of things network, Hamburg testing 5G, and since June this year French ports have been offering a graphical visualisation of containerised goods showing key performance indicators in real time).
We have also seen: digitisation in road transport (as with Fretlink, Everoad and Shippeo); data sharing with upstream or downstream supply chain (for example, automotive manufacturers with their suppliers on parts inventory management or lead times); customs digitisation to improve the exchange of data between countries; and European Transport regulations (eFTI – Electronic Freight Transport Information, published in the Official Journal of the EU and scheduled to take effect from August 21 2024).
Data must be seen as a core element rather than as an afterthought
Supply chain stakeholders - corporates, banks, carriers, shippers, customs, ports - need to achieve progress in their own data revolution and treat data as a core element of their business, rather than as an afterthought.
This needs a complete new culture and mindset, embracing the ability to assess immediate benefits while sharing data with other entities. This needs the capacity to mitigate risks such as fraud and the leakage of sensitive information, through purpose-built security plans, processes and an enhanced legal environment. This needs updated IT infrastructures including datalakes and APIs, and the allocation of adequate resources of time, money and personnel.
Fewer standards but better standards
A long-running joke in standards circles is that God must love standards, as he has made so many of them. It is in fact very painful to see the continuing emergence of cross-industry standards through sector-based consortium approaches as in banking and shipping, or through fintech-led platforms.
Adoption, however, is traditionally very low and the risks associated with joining a market standard initiative that will fail are high. We firmly believe that institutions should combine their efforts in the interests of designing a holistic core trade dataset through a co-ordinated cross-industry initiative.
Everyone potentially has a part to play in shaping the future in digitising trade finance. Increased clarity in governance and the legal framework of international and cross-industry data sharing processes could be delivered if governments, supranationals, supply chain giants and fintech firms put aside their differences and concentrated their efforts on the common good.
Which way next?
The first target for banks in the usage of data is to improve the efficiency of their internal processes and enhance transparency for external parties including clients and regulators. Enhancing transparency, data collection and visualisation across internal silo is an essential first step in enabling further sophisticated use cases leveraging external data from the supply chain ecosystem.
What we see our clients expect in terms of ideas for new business models is convenience and speed, security, resilience and sustainability, smartness and customisation.
In terms of convenience and speed, physical or financial flows would be automatically triggered after a captured event (in we.trade-like models, payment is triggered after the receipt of goods or at the agreed payment date).
In terms of security, resilience & sustainability, there needs to be improvement in data-sharing and end-to-end supply chain tracking to make the fulfilment of compliance requirements and real-time auditing easier. New KPIs will also be embedded in the supply chain process and will be leveraged by the financial sector to enable funding differentiation, potentially based on sustainable or green criteria.
New services will provide smart analytics for each corporate to better understand its own performance in turnaround times, warehouse capacity, supplier performance and treasury management and benchmark that performance with its peers, through the translation of information network into operational knowledge.
Based on historical data or market data, a new generation of services will be able to provide predictive analysis and appropriate, effective and timely alerts. This could be of great help when, for example, a boat is found to be moving away from the ideal route, or when a trade transaction is more complex than average and will take more time to be processed, or when a truck falls behind schedule and will make a late delivery. All involved will be able to benefit from the taking of corrective action before a potential problem becomes an actual problem.
Last but not least, new advisory services will emerge to help corporates have a better structure for individual trade transactions, centring upon the most appropriate financial service to use, eco-friendly structuring, the best partners to team up with and the least risky set-up. All this can be done by reassessing in real-time the different risks posed by the corporate itself, the country in which a transaction is mostly taking place and foreign exchange considerations.
In conclusion
In this as in many other areas of everyday life and everyday commerce, there is a clear sense taking root that the short-term pause for thought enforced by the global reaction to Covid-19 could help accelerate longer-term trends in the digitisation of trade finance.
In the field of data standardisation, the Covid-19 effect has returned the issue of sovereignty to the forefront of discussion. As with the EU’s electronic freight transport information regulation initiative, we could in the future see further moves from EU authorities (and others) to bring about a new era of data standardisation in Europe.
If we can work together to optimise the outcome, some lasting good might well emerge from the chaos of recent months.