Digitalisation of trade finance
Asia Weekend read

APAC Insight: Improving How Trade Finance Operates Is Crucial In A Post-Covid World

The push to digitise trade transactions has accelerated during the Covid-19 pandemic with a growing appetite for innovative technology ecosystems and platforms that improve collaboration and operational efficiency. In this second part of our two-part series, The Fintech Times hears from industry leaders on the digitisation of trade finance in APAC.

Read Part One here… 

The global pandemic has accelerated the adoption of digital technologies, as well as the uptake and use of new and innovative technology ecosystems and platforms for improved collaboration and operational effectiveness.

Supply chains and trade finance in the APAC region have also transformed in order to meet a growing need to mitigate risk in these unsettled times and the continued need to pursue sustainable practices to move towards zero-carbon emissions.

The Fintech Times hears from Farah Miller, CEO and co-founder of Helixtap Technologies and Carl Wegner, CEO at Contour on the decentralisation and digitisation of supply chains.

Farah MillerFarah Miller, CEO and co-founder of Helixtap Technologies, was previously a commodities trader. She established the global digital trading platform for physical rubber; democratising access to data, digitising the supply chain, and providing data-driven financing.

According to Miller, for B2B organisations, the move to decentralise supply chains has some commonalities with the B2C agenda. For example, every single business needs to focus on their customer experience; by providing more localised products more rapidly as the certainty of delivery is hindered, if not jeopardised, by pandemic-related border closures.

“There is more ESG-related pressure on businesses to reduce their carbon footprint,” she explains. “In addition, understanding key elements, such as the distance to factories when shipping cargoes, increasingly influences procurement teams’ decisions for these reasons, as well as driving cost optimisation. Decentralised supply chains are better equipped to deal with arising regional-specific issues through more engagement with local partners and stronger relationships.”

Recipe for success

Miller suggests that successful decentralisation can only happen with digitising the underlying infrastructure in place, otherwise there is inherent risk at every step.

“Access to the right data at the right time across the entire value chain is critical to provide visibility and end-to-end transparency for better decision-making and to ensure all participants can unlock opportunities as they arise,” she says. “This improves the overall experience – from customer retention, acquisition, and engagement to cost reduction. Data also provides opportunities for the assessment of companies who are expanding or adhering to ESG metrics; this is critical in the context of value adding in the supply chain.”

Trade finance

As well as supply chains, global organisations are delivering trade digitisation solutions to assist banks in providing innovative trade and supply chain services to reduce risk, enhance process efficiency and improve liquidity.

Miller says trade finance ecosystem still require the innovation from startups in this area, bringing in sector specific knowledge and understanding of the customers’ needs and requirements by focusing on often ignored segments in the market and serving that market well.

“This could include better trade finance access for producers in agricultural commodities, currently exposed to price risks that they cannot control. Cloud services, a startup sector innovation that is ubiquitous today, stemmed from Amazon solving an issue they faced themselves during its early days of scaling an e-commerce business. However, the impact rippled across the entire industry when the cost of starting a business reduced significantly as startups could share a server and pay for what they needed as opposed to have dedicated on-premise services. Of course, that has now expanded to the mainstream and enterprise segment, which illustrates just how salient startup innovation was in this area.”

Supply chain resiliency

“Securing supply chain resiliency, particularly in the APAC region, necessitates a focus on two key areas: the importance of ecosystem interconnectedness and the increasing need for optionality in business, particularly during current turbulent times. The recent container and freight shortage in the region shows how bottlenecks can impact business, which can cost companies 264 per cent higher for Asia to North Europe routes.

“Geo-political turmoil and the recent US-China trade wars have shown the influence of global trade and how political decisions in large economies impact supply chain needs. China consumes most of the world’s raw materials (40 per cent in the natural rubber industry). As the saying goes: when China sneezes, the rest of the world catches the flu. In addition, with the recent election of Joe Biden to the US presidency, the focus on electric vehicles has increased, necessitating an increase in all manufacturing elements and subsequent changes required throughout their associated supply chains.

“Once again, it is data and technology that will provide solutions. By providing greater transparency and offering real-time data and updates, better decision making and solutions for the situations are on the horizon.”

Decentralising supply chains for the future of trade

Contour, the trade finance network powered by R3’s Corda, launched in Singapore last year. It unites buyers, suppliers and banks on the world’s first global, decentralised, digital trade finance platform that is open to all geographies and industries.

Carl Wegner is the CEO of Contour Carl Wegner, CEO at Contour, works closely with a range of leading trade finance institutions that are part of the network, as well expanding Contour’s reach in the trade finance space.

He says there is an increasing need to improve how trade and trade finance operates to coincide with the changing ways organisations work in a post-Covid world.

“Through all the advancements seen over the past century, international trade has been slow to change. For example, letters of credit (LCs) continue to be an important trade finance product for global traders, but they rely on paper-based processes, which are fundamentally slow and prone to error. .

“One reason why international trade finance has not fully embraced technology is the lack of a common network. As there is no standard connectivity between banks and corporates for trade-finance related communication and data sharing, information struggles to be shared effectively – often resulting in paper documents being hand couriered to each party. Without this common network, any technology application has a limited impact on trade finance operations.

“Here, the industry should look to establish an interconnected global network to drive out inefficiencies, improve data transparency and enable interoperability between banks and corporates to start, and eventually to all trade participants. The current ecosystem also does not integrate the main elements of trade such as contracting, post-trade fulfilment and customs, which inevitably cause friction and unnecessary administration. This in turn increases costs and can delay cargo availability. Unless global trade processes are digitised, commercial activity across borders will always be held back.”

The benefits of a decentralised network

According to Wegner, to begin the process with trade finance, any solution must have the priorities of banks and corporates at heart. And with so much data in global trade, privacy and autonomy must be provided.

“A decentralised network is an ideal tool to achieve this, allowing integration and transparency in real-time while still maintaining data security and independent ownership. Through a decentralised network, no one party, including the network operator, owns the entire network or controls all the data. All parties in a transaction can share relevant information to finalise an LC with a clear and auditable data trail – without sharing any data to unrelated parties in the network.

“Also, a decentralised network can reduce the processing time of key steps by up to 90 per cent. This can mean a reduction from 10 days to under 24 hours to complete a presentation under an LC. This will create huge efficiency gains for banks and corporates, ensuring goods are transported quickly and working capital is optimised. With increased pressure on both financial institutions and corporates to tighten their belts, this opportunity cannot go ignored.

An inclusive ecosystem

“Efficiency gains are not the only benefit of a decentralised network. If international trade is underpinned by a common decentralised network, then companies of every size will have more opportunities to do business. For example, smaller banks and corporate players eager to grow overseas will be able to tap into a common network for knowledge and LC access while larger organisations will have a wider network of potential partners.

“Also, a new digital network will not be a competitive advantage for only a few. Businesses that embrace the distributed network model early will prosper, as standalone offerings struggle to compete. However, international trade needs to innovate as an industry. The trade finance community can succeed together or fail alone, and a common network is the first step to building a better future for trade.”

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