Asia Fintech Weekend read

Fintech Report: Asia Bounces Back From Pandemic Through Digitisation of Trade Finance

Efforts to digitise trade transactions have accelerated during the Covid-19 pandemic with a rising appetite for innovative technology ecosystems and platforms that improve collaboration and operational effectiveness. In the first of a two-part series, The Fintech Times learns about the digitisation of trade finance in APAC and hears from keys leaders on the need to bring speed and accessibility to supply chain financing.

Asia trade has adapted well to Covid-19 pandemic conditions and, while the global trading system has been rocked, it may be able to emerge from the crisis stronger than it was before the pandemic.

That’s the viewpoint of Steven Beck, head of trade and supply chain finance at the Asian Development Bank (ADB), who says fast-tracked efforts to digitise trade transactions should be continued to make trade systems more efficient.

Steven Beck
Steven Beck, Asian Development Bank

Beck has managed exponential growth of the ADB’s trade finance business and implemented its first supply-chain finance business. He also initiated a tool that maps the entire supply chain for Covid-related goods to address shortages and is on the advisory board of the ICC Banking Commission and the World Trade Board and the governing board of the Digital Standards Initiative.

He says: “Aside from the obvious effects of shuttered factories and borders that were all but closed, trade was very vulnerable to this crisis since the pandemic limited human interactions. A typical trade transaction can be accompanied by a small forest worth of paper forms that crisscross between buyers, sellers, ports, customs officials and banks, each one physically delivered and signed before moving on to the next signatory. That’s hard to accomplish when contact is being avoided.

“The fragility of such a system was already apparent before Covid-19 and efforts to modernise trade finance were well underway, but the pandemic has helped push efforts toward digitising trade transactions to a tipping point. Those efforts have been speeded up and now they need to spread throughout the global trading system, with the somewhat scattershot range of approaches being tried narrowed to the point that we have digital tools that everyone can use.”

Open trade standards

In line with this effort, the trade finance team at the ADB has worked with the Government of Singapore and the International Chamber of Commerce to create digital standards and protocols for trade by launching the Digital Standards Initiative. This aims to develop open trade standards to facilitate interoperability among the various blockchain-based networks and technology platforms that have surfaced in the trade space over the past few years.

Beck comments: “We’ve held webinars and training sessions to ensure our partners in banks across developing Asia can quickly get up to speed on the latest efforts in digitisation. In August, we became the first multi-lateral development institution to complete a pilot trade finance transaction using blockchain distributed ledger technology.”

According to Beck, moving the digitisation agenda forward is critical for more robust and resilient trade and supply chains. It will also help drive efficiency and productivity gains that will be important component parts to re-build the global economy and to bring developing countries in Asia into the global trade system.

Spotlight on problems

“Of course, digitisation wasn’t the only need exposed by Covid-19. Early in the pandemic, we tried to use our deep contacts in the banking world to find out how we could shine a spotlight on problems in the supply chains of key medical goods, which at the time were under extreme pressure. But as it turned out, that information was not available. Even the banks didn’t have a clear picture of whether the companies they worked with were involved in the supply lines.

“In response, we created a free interactive mapping tool for the supply chains of products vital to those on the frontlines of the battle to allow governments, banks, investors, and healthcare professionals to trace the companies that make every component in products such as masks, portable ventilators, and protective equipment, down to the metal and rubber that goes into each part. The mapping tool now searches the supply chains for 33 products, including vaccines and products needed to support delivery, including cold chains.

“Since April last year when we shifted our efforts to target Covid-19-fighting goods, we have supported around 1,300 transactions involving medical supplies worth about $240million and more than 1,000 deals involving food security and agriculture valued at about $1billion. Rather than Covid-19 setting back our efforts to support trade, we actually increased our business substantially in 2020, with the number of deals we worked on up more than 50 per cent to over 7,000 for about $5.8 billion in value.”

For Beck, while the global pandemic has been a challenge to trade, the doomsday scenario of trade grinding to a halt hasn’t happened. He believes that when the pandemic is over, global trade should be even stronger.

Learnings to transform the wider global trade ecosystem

Desmond Tay, CEO of GUUD (which aims to simplify trade and shipping processes by connecting the entire value chain in one platform), agrees that the impact of Covid-19 has led countries to realise the importance of improving the resilience of the supply chain networks.

Desmond Tay, CEO of GUUD
Desmond Tay, CEO of GUUD

He said: “In order to move towards a truly digitalised and connected ecosystem for trade and trade finance, mass adoption on a global scale is essential. This can only be achieved if technology players prioritise forward-thinking and inclusive integration solutions that lower the barriers to entry for all types of companies involved in the trading process.

“Fortunately, with the impact of Covid-19, more countries realised the importance of improving the resilience of the supply chain networks. Japan, India and Australia recently agreed on 1 September 2020 to launch an initiative to achieve supply chain resilience in the Indo-Pacific region to reduce their trade dependence on a single nation. This would mean a pressing need for regional cooperation within the region and an enhancement of technological initiatives to create an inclusive, transparent, predictable, and stable trade and investment environment within the region.”

Looking forward

According to Tay, for a global trade ecosystem to fully benefit from digitalisation, the industry has to look beyond just the digitalisation of documents. Current trade, shipping and financing processes including proof of delivery of cargo, title ownership and even regulatory compliances, involve paper documents are produced and exchanged between stakeholders. By simply converting these paper documents to digital, then the point on digitalisation would be missed.

“For example, with the advent of sensors and IoT (Internet of Things) devices that could be attached to cargo, data collected from these devices are far more accurate, secure and trustworthy then the cargo information being described in documents such as waybills, invoices, certificates and customs declarations,” says Tay. “With these data, perhaps it could make the need to produce supporting documents, regardless paper or digital, irrelevant for different cross border applications such as trade finance.

“By connecting all participants in global trade transactions online in an ecosystem, we can create an environment that allows people to connect with their vendors easily and quickly to confirm shipments and documents, ensuring full accountability and traceability in every transaction. Companies of all sizes will benefit from better visibility into trading relationships and easier access to financing options through secure access to a global network of trading partners.

“By digitalising trade processes and replacing legacy systems, we can also reduce the risks and delays to stakeholders involved in trade finance. In trade finance, banks have taken a cautious approach to digitalisation due to issues such as data security and fraud.

“However, through the adoption of technologies such as blockchain for secure data exchange, costs, risks and delays to participants involved in trade finance are now greatly reduced. This technology, as described by the Asian Development Bank, has the potential to unlock a $1.5trillion opportunity in global trade finance.

We look forward to an eventual state where digitalisation becomes a norm and digital platforms such as the ones created by GUUD to digitalise trade processes across Asia and Africa become widely adopted in order to benefit economies, the livelihoods of people and the world-at-large.”

Next week, Part Two will share insight from Farah Miller, CEO of helixtap technologies, an independent digital platform for collaboration and market development across pre trade, trade and post trade environments, on the potential of decentralisation and digitisation of supply chains. In addition, Carl Wegner, CEO at blockchain-based trade finance platform Contour, will discuss the challenges of decentralising supply chains for the future of trade.

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