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How digital trade finance is changing trade banks

24 October, 2022Alex Gray

Trade finance is changing. As paper documents are replaced by digital tools and fintechs join the sector, trade clients and their banks will benefit from a far more seamless experience. Our Head of Trade and Transaction Banking, Alex Gray, outlines what to expect and why there will always be a role for humans in trade finance.

Ship in sunsetTechnology has altered the way we bank, shop, source information, meet life partners and make new friends. However, one vital part of human life has been a little slower to embrace digital change – that is trade finance.

There are good reasons for that, particularly as the world battles with money laundering and financial crime. Concerns about security – at banks, among clients, and in governments around the world – have slowed the progress of trade finance to digital.

The Covid-19 pandemic however, made it clear that digital trade finance was something that the world needed and now change is imminent.

Documents of title such as bills of lading, will no longer have to be in paper form thanks to the Electronic Trade Documents Bill.  Introduced in the UK Parliament last week (12 October 2022), this will make digital signatures valid in trade finance, from about the end of 2022 or beginning of 2023.

How trade banks will benefit from digital

According to some sources, there are about 28.5 billion paper trade documents printed and flown around the world every day. That’s a huge volume of paper, demanding a manual process that requires close concentration of a complex subject.

This can be challenging for even the most skilled, experienced and well-trained checker.

We can expect artificial intelligence (AI) to transform digital document checking – one of the most crucial, and most expensive, back-office services that banks provide to clients. It’s now possible to use software to check any number of trade finance documents for discrepancies all day, every day.

Even so, don’t imagine for a minute that trade finance is about to become fully automated any time soon!

Trade finance needs humans

By automating part of their operations, banks will be able to make better use of their skilled, experienced and well-trained trade finance professionals.

Software might spot a discrepancy, but it won’t be able to make a judgement as to how to proceed.

It won’t be able to assess whether transactions with dual-use goods, such as fertiliser and lasers, are legitimate. Nor will it understand that there’s something off about a price, or a charity, or a particular shipping route.

Software won’t be able to pick up on whether a client seems unusually nervous or is behaving out of character. It won’t have gut feelings or hunches, or any understanding of human behaviour – sophisticated or otherwise.

In short, no matter how good the coding, the data and the algorithms, analysis is nuanced. The final call will always need a trained and qualified human.

How clients will benefit from digital trade finance

The digital transformation of trade finance means that clients will get a much faster, more efficient and more effective service. It will enable trade banks to make faster and better financing decisions.

It will also bring more fintechs into the space, which will reduce trade finance costs, particularly for small to medium enterprises (SMEs).

Perhaps one of the best advantages for trade finance professionals is being freed from piles of paper documents.

They’ll be able to devote more time and talent to analysis, managing relationships and all the ‘human’ aspects of the role. As we all know, these are things that make careers in trade finance so endlessly fascinating.

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See our Trade Finance and Transaction Banking qualifications