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How digitisation is transforming trade finance

Trade and Supply Chain Management

2022-10-21 00:00

An age-old, paper-based activity typically involving multiple parties, processes and geographies - trade finance is often a key function of corporate treasury. Digitising this complex process was always going to be a tough challenge, yet significant progress is being made, aided by a variety of factors.

The pandemic, which imposed inconceivable pressures on global commerce and its supply chain networks, has been a prime catalyst. At the same time, rapid technological advances and growing regulatory support have coincided with calls from corporates and investors to enhance focus on operational efficiencies and sustainable growth, prompting an increasing number of businesses to move ahead with digitising their treasury operations.

“All of these factors have now come together and are continually pushing us towards greater trade digitisation,” says Hari Janakiraman, Head of Industry and Innovation, ANZ. “Sometimes change happens so slowly you don’t notice it. That’s no longer the case.”

Trade digitisation shifting gears

The beginning of the digital transformation of trade finance can be traced back two decades when companies began upgrading to better enterprise resource planning (ERP) systems and the banks serving them switched from mainframes to operating workflow-based systems. Digitisation efforts picked up further with the introduction of the World Trade Organization’s single-window trade facilitation system early in the 2010s.

{CFINFOGRAPHIC: benefits-of-a-single-window-environment.png}

Source: The Single Window concept, Trade Facilitation Implementation Guide

This engendered a proliferation of digital platforms that communicated with one another and shared key data and information, helping traders and their financial institutions move away from traditional, document-based trade finance. More recently, the Model Law on Electronic Transferable Records (MLETR) introduced in 2017, enables the use of electronic transferable records both domestically and across borders. It should have a significant impact on aiding digitisation efforts when more countries embrace it.

Working with banks, regulators are also facilitating the creation of digital trade platforms - such as the Networked Trade Platform in Singapore - to exchange trusted trade data among all stakeholders, including importers, exporters, logistics companies, financial institutions and government agencies.

According to Abhishek Vyas, Director, Trade Product Solutions, ANZ, the rise of supply chain financing, which is by nature more amenable to the use of data compared to the paper documents used by traditional trade finance products, has fuelled a rapid rise in the availability and use of third-party platforms offering enhanced features, such as dynamic discounting, paperless onboarding and better user interface. 

{CFINFOGRAPHIC: the-problem-with-paper-2x.png}

Source: Bringing speed and trust to your financial agreements, Lygon


Meanwhile, as people grow increasingly comfortable with digital tools – yet another indelible impact of the pandemic – they are bringing about a change in their employers’ approach to adopting technology. In trade finance, changing attitudes have led to a growing acceptance of electronic executions and documentation, such as e-signatures, e-drawdowns and e-claims, in return for significant benefits. For example, research shows using electronic bills of lading can reduce transaction times to about a tenth of the time taken to process their paper version equivalents.

“People’s appetite for technology has really shifted and the need to transact electronically in all ways is really pushing our comfort zone and that’s a good thing," says Sally Robinson, Global Head of Guarantees - Product, ANZ.

Banks as enablers

Even as businesses grow more comfortable with all things digital, banks like ANZ are providing the support their clients need to make the transition by helping upgrade their systems, automate internal processes and convert physical trade documents into electronic form. 

{CFINFOGRAPHIC: improving-your-digital-banking-experience-2x.png}

Source: Page 18, The Future of the Global Supply Chain: Resilient, Sustainable, Transparent; February 2022; ANZ Institutional

Once digitised, the rich veins of information contained in trade documents can be mined using machine learning (ML) and artificial intelligence (AI) technologies to power the predictive analytics capabilities vital to decision-making within corporate treasury. In fact, the use of robotic process automation (RPA) has been shown to save companies as much as 60 percent of the annual costs spent on certain trade finance processes.

ANZ, which has automated almost 70 percent of its trade operational processes using ML and is now looking to automate complex documents such as guarantees, has also invested in organisations that can help expedite the path to a paperless future. In 2019, ANZ became a founding equity partner in fintech firm Lygon, which uses blockchain technology to enable same-day issuance of bank guarantees – a process that used to take up to a month. 

ANZ is also a founding member of the Trade Information Network (TIN), a global platform formed by a six-bank consortium. Free to use for corporations, TIN is a versatile system enabling the secure exchange of information for open account transactions – which now account for nearly 80 percent of all global trade transactions – as well as certain types of letters of credit (LC) transactions. Thus, it provides the ability to better assess the various risks associated with open account trade finance while also providing a collaborative space for lenders to work closely with each other and explore fresh business opportunities.

“Lygon offers clients a single view of all their guarantees and therefore better control over these transactions. TIN enhances working capital liquidity, a crucial component for companies and their suppliers involved in open account transactions,” says Abhishek Vyas, adding: “In this way, both entities address real customer problems across industries and support the digitisation of their workflows.”

{CFINFOGRAPHIC: purchase-orders-and-invoices-are-exchanged-via-existing-systems-2x.png}

Source: How it works, Trade information network

Leveraging the technology

So, how can treasurers leverage these technological advances to enable and empower their business? A common refrain among treasurers is it’s hard to differentiate between the available technologies and pick the right one for their circumstance.

For treasuries wrestling with this issue, the key is not to focus on a single type of technology but instead to consider solutions-driven platforms that address a variety of challenges, according to Sally Robinson. “Choosing a technology is like picking a garden tool – it’s all about selecting the right equipment for the right purpose,” she says. “And the good thing is, we now have a range of tools that can solve customers’ problems.”

Cost is another issue businesses are reckoning with. The hard truth is that the cost of digitising trade processes is trending down, yet still remains high – especially for small and mid-sized enterprises (SMEs), which account for a significant proportion of global trade. Furthermore, investments in digitisation do not always directly translate into more revenue and the benefits tend to benefit one party more than the other, Hari Janakiraman points out.

Add to this a litany of macro challenges – inflation, rising interest rates, supply chain bottlenecks, geopolitical crises and trade wars – and it’s understandable that companies and their treasuries may want to deprioritise the digital push.

Nonetheless, most businesses have started recognising the challenges of managing their various trade finance arrangements as well as the different forms of risk inherent in conducting modern trade with manual processes. And in working towards modernising their legacy systems, they are falling in step with expert recommendations that companies ramp up the transition – even if it's only in a phased manner that can eventually be scaled up as the business grows and takes on more suppliers and customers.

The long-term benefits of digitisation justify the initial expense, notes Janakiraman, stating: “Cost is a key element of decision-making but change isn’t always free and the benefits for everyone involved are not always apparent. There are plenty of examples of companies, especially in the resources sector, that have gained enhanced operational efficiencies after switching from traditional processes and instruments.” 

There are other challenges to consider as well: from the formulation and adoption of cross-border legislation and the interoperability of platforms and technologies, to the lack of standardisation in digitising trade documents and processes. However, the ANZ experts agree developments are ongoing across all of these fronts and creating a strong network effect that is both facilitating the process of digitisation and strengthening the argument for it.

Preparing for a 360-degree ecosystem

Crucially, digitising trade finance can help enhance deep-tier supply chain visibility and promote sustainability goals in ways traditional methods do not. For instance, ‘intelligent visibility’ – the ability to know whether the various components of a product have been produced in a sustainable fashion or are derived from sources untainted by sanctions – is a feature that can satisfy the growing demands of customers, investors and regulators, all of whom want companies to improve their ESG credentials. 

{CFINFOGRAPHIC: what-are-the-buildign-blocks-of-intelligent-visability-2x.png}

Source: Intelligent visibility, Accenture

Deep-tier supply chain visibility will also help companies comply with a raft of upcoming regulation, such as the U.S. Securities and Exchange Commission’s proposal requiring companies to track and report Scope 3 emissions, i.e. the emissions of every entity in a company’s entire value chain.

Supply chains of the future are preparing to rise to the occasion by being transparent, connected, data-driven systems that can provide companies near-real time visibility across the entire network and enable them to take pre-emptive action to cope with future disruptions. And these features will be powered by a combination of technologies, such as cloud computing, blockchain, AI, ML, RPA and the Internet of Things (IoT). 

Clearly, there are many ongoing developments in the trade digitisation sphere that offer the tools businesses need to tackle the numerous challenges they currently face. As trade finance continues to evolve into its next iteration, where the actions of each entity will matter to everyone else in the value chain, corporate treasurers must critically assess where they are in the digitisation journey. This will enable them to equip themselves appropriately to not only handle the rigours of a 360-degree, non-linear trade ecosystem that awaits in the not-too-distant future, but also capitalise on the significant growth opportunities it will bring.

As Vyas notes: “Concerns about deglobalisation and decoupling notwithstanding, we'll always have trade, be it cross-border or domestic. And digitisation will follow where trade goes.”


Hari Janakiraman, Head of Industry and Innovation, ANZ

Abhishek Vyas, Director, Trade Product Solutions, ANZ

Sally Robinson, Global Head of Guarantees - Product, ANZ

How digitisation is transforming trade finance
ANZ experts
Trade and Supply Chain Management


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