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It will also digitise one of the key processes in international trade: the transmission of the bill of lading, which exporters use to control goods until receipt of payment from the importer.
DIGGERS AND DEALERS
Demand for digitisation in the corporate sector is primarily driven by large groups in the commodity industry like mining and agriculture. These companies are chasing reduced costs through increased efficiencies and working capital improvements through the quicker processing of payments.
Additionally, the increased visibility of all information provided by the process reduces the risk of fraud. eDocuments also provide more security given everyone who played a role in the transaction chain can be determined and located.
Despite these improvements the process creates some unique challenges. Unlike other transactions, trade finance needs a lot of people at the table including shipping companies, chambers of commerce, insurance companies, customs authorities, inspection companies and more.
Going completely digital requires significant infrastructure investment to get everyone connected. In certain pockets, this has started but there is a long way to go before everyone is at speed.
A lack of services offered by financial institutions has played a role in keeping the take-up of digital trade financing at low levels but has also provided an opportunity for new industry players.
For banks, the digitisation of the sector offers similar advantages and disadvantages as it does for customers.
The main benefits of the digitisation for banks are increased efficiency and a reduced risk of fraud. The fall-out from last year's claims over scam 'repo' deals (metals-backed sale and repurchase transactions) involving warehouses in Qingdao and Penglai provides a strong case for this.
By going digital, banks will also have increased visibility over the end-to-and physical and financial supply chain. This would make it possible to intermediate in the chain at a much earlier stage than what happens today, giving them a greater role in the process – and profits.
For example, a bank may be much more comfortable to provide pre-shipment financing if they can see the creation and acceptance of a purchase order. A next step could be that banks extend trade-finance services to customers in locations where the bank does not have a physical presence.
On the downside, banks will also be required to invest in technology. While current volumes in digital trade do not justify large technology investment, it will be necessary when volumes increase. Other impacts for banks include changes to legal documentation, operational processes and staff training.
Additionally, various companies may not want to be tied to a single bank system and therefore prefer third party multi-bank solution providers when utilising digital trade. Banks will need to become comfortable in partnering with third-party vendors who provide eDocumentation services or risk being squeezed out of the process entirely.