When the results of the 2020 ICC Global Survey on Trade Finance were released in July 2020,  John W.H. Denton (AO), the General Secretary of the International Chamber of Commerce (ICC), said the survey “indicates that banks are highly optimistic about the long-term future of trade finance and are looking to invest further.”

Banks are stepping up, and given the growing importance trade finance, it makes sense to invest in automation for this vital business line. Automation can help maximize profitability and improve the customer experience.

Trade finance is complex to manage, and complexity is an even bigger problem when demand is growing – as it is today. Trade finance is more important than ever given the realities of the pandemic, the rise of cross-border tariffs, the breakdown of institutions, and trade wars, all of which have contributed to a disruption in global supply chains. These factors may have resulted in higher trade-linked defaults (especially during the peak of the pandemic), but international trade is already showing signs of recovery. A V-shaped recovery is being predicted in most economies around the world, and if that unfolds, a surge in demand for trade products can be expected. The fact that global trade is recovering and supply chains are becoming increasingly international is good news for banks that supply trade finance. At this point, transactions are moving away from traditional trade products such as LOCs to open trade accounts.

However, with remote working becoming a norm, physical inspection of trade documents has become almost impossible. This has pushed banks towards digitization while considering automating trade finance operations.

Automation is essential, because the biggest challenges in trade finance are complexity and manual processes. For instance, letters of credit (LOCs) generate a substantial paper trail; the ICC estimates that more than four million pages circulate in trade finance, and this demands a substantial amount of manual scrutiny. Paper trails and manual processing mean that trade finance transactions are riddled with errors and are expensive. Moreover, they don’t generate transparency in terms of transaction status or communication with parties including insurers or freight forwarders. Further, the need for multiple levels of approval and verification for documents, along with the need for amendments and modifications (including location differences for banks with multiple branches or offices) generates enormous complexity for trade finance transactions.

Digitizing: The Opportunity to Reinvent

Banks will find immense value in digitizing the labor-intensive, largely paper-based trade finance transactions. Not only will digitalization result in reducing transaction turnaround times, it will also bring down the high handling and storage costs typically associated with such transactions. Digitalization is not merely a trend for banks; digitalization is a change disruptive enough to switch labor-intensive manual processes to automated ones.

       Fig. 1 Pain Points in Trade Finance Operations

Most of the pain points outlined in Figure 1 can be alleviated using digital trade ecosystems. Generally, corporates, banks, importers, and exporters want the same goal: to make trade simpler and cheaper. Automated trade processes reduce manual effort, reduce errors, and increase consistency. Further, digitalizing the process will offer greater transparency and connectivity among the ecosystem of trade finance: importers, exporters, customs agencies, shipping companies, and banks.

According to the 2020 ICC Global Survey, 83% of global banks have a digital strategy for trade finance in place. Of the various digital technologies surveyed, banks picked online platforms as the most implemented approach. Swift MT798 came in second, followed by APIs, imaging, and OCR.

Trade Finance Automation Technologies

Distributed Ledger Technology: DLT could be a real game-changer in trade finance thanks to several features: It provides real-time review of documentation. It offers complete transparency (for all parties), immediate access to information, and the ability to conduct peer-to-peer transactions. A DLT-based solution could make end-to-end automation a distinct possibility.

Imaging, Optical Character Recognition, and AI: OCR in conjunction with AI can offer a perfect trade finance solution. The key feature of this technology is the ability to convert paper documentation into a specific electronic format, which will greatly reduce processing time. Subsequently, valuable transaction-related data and information can be gathered in a structured form.

Robotic Process Automation: RPA is a business process tool that automates tasks that are repetitive, manual, and/or rule-based. In the realm of trade finance, RPA can monitor and classify documents, manage compliance checks based on specific conditions, and extract eligible data. While rule-based and labor-intensive processes are perfect candidates for RPA, processes that require validation or judgment may not be a good fit. Here, banks may consider enhancements along with the traditional RPA.

Application Programming Interfaces: API acts as a plug-and-play interfaces between different systems and the embedded data. APIs not only improves efficiencies but also creates new opportunities and new solutions and enhances existing applications Increasingly banks today are looking to leverage agile technologies, including microservices operated in the cloud to improve operations with automated processes, and therefore increase the efficiency of doing trade.

Benefits for Banks

Given the growth and importance of trade finance – and the critical role of banks in initiating and facilitating end-to-end trade operations – it’s important for banks to evaluate technologies like the ones described here.

In considering these technologies, banks must balance the need to address current trade finance requirements with future requirements; trade finance is a fast-changing, dynamic area. Banks may still be far off from fully automated trade finance operations, but even a partially transformed process can deliver real results and help them deliver a more automated, more seamless, more effective experience to their customers.

Wipro Capabilities in Trade Finance Automation

Wipro’s expertise in the automation of trade finance covers the entire value chain, including letters of credit (import and export), guarantees (inward and outward), loans, collections (import and export), shipping guarantees, and reimbursements. By integrating OCR, machine learning, and decades of experience, Wipro’s enterprise-ready trade finance solution delivers maximum value and minimizes risks.  

The platform supports global implementations using a single instance, both on-premise and cloud-based. It integrates seamlessly into current business processes and can be rapidly deployed for production use. And, when integrated with back-office systems (auto block transactions, hard link to source data), Wipro’s solution minimizes risks and increases productivity by shifting manual processes to straight-through processing.  

Ultimately, with Wipro as their trade finance technology partner, banks can focus on their biggest source of competitive advantage: client service and building relationships.