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Why The Future Is Now For The Digitization Of The Global Trade Finance Industry?

Trade-specific workflow platforms ensure intuitive & intelligent transaction processing and real-time status updates for trade finance operations and to customer-facing departments.

The advent of the Covid pandemic had significantly disturbed the global trade equilibrium and had taken a toll on all economies. However, recent times have seen respite in terms of the Covid-caused damages, and the economies are now on the path to recovery. In this scenario, the restoration of cross-border trade is key to the expected economic recovery. The International Chamber of Commerce, WTO, and Financial Regulators have recently redefined trade guidelines to facilitate businesses to function without physical movement of trade documents. The viral outbreak has actively proved that digital transformation is indeed critical to enhancing business longevity in today’s heavily technologically infested world.

A weighty fraction of global trade is financed by some type of credit, guarantee, or insurance. This signifies the importance of cost-effective trade-credit systems online that most businesses need to aid both imports and exports in the present day. There is thus an acute need for creating & enabling conditions for businesses to import, export, and service international markets.

The concept of Trade-Based Money Laundering (TBML) was continually changed and transformed during the scope of the pandemic. The period spent within the pandemic saw a surge in fraudulent activities concerning international trade, as per reports from FATF members, observers, and open sources. There was also a substantial rise in seizures of fake products during a collaborative enforcement effort by the WCO, Interpol, Europol, customs administrations, police forces, and other law enforcement agencies.

Another challenge that surfaces during the Covid era was the sharp rise in freight charges. Naturally, the increase in freight charges had a notable impact on trade services. A significant component of trade costs is shipping rates, and the recent hike in the shipping rates has also posed an additional challenge to the already struggling global economy.

In the face of these challenges, banks, and economies the world around toiled to sustain themselves. In a desperate scramble to keep functioning during the pandemic, banks rolled out digital tools for businesses. Fortunately, they were enthusiastically embraced by corporates and SMEs in challenging times. The introduction of these tools was in fact so well received that businesses are continuing with their use even in the post-Covid era. This was a striking shift for the banks as such hearty acceptance from businesses meant that they could use the digital tools as the foundation for a new, online network of distribution.

In the wake of the new ‘Work from Home’ norm, the banks that were facilitated with centralized systems of trade services and an upgraded technical infrastructure managed to sail through the situation. Through the first lockdown organizations with centralized trade operations were able to modify their work plan and manage the operations to suit the ongoing circumstance. However, banks with decentralized trade operations have to suffer prolonged disruptions and difficulties during this time. These banks sported a weak/ obsolete technological infrastructure and decentralized trade operations, which acted in their disfavor. Adoption of technology and centralized trade functions became critical to address for a majority of the banks across the country so as to minimize the risk of any such future obstructions. It was also important for the banks to make efforts to minimize the trade finance gap of SMEs of India.

Several Fintech firms, mature IT Vendors, and big banks aggressively invested in developing online, API-based operations and services. However, the same was not possible for many smaller and medium-sized banks and corporates who were unable to keep pace with the need of the hour due to a lack of resources and expert knowledge.

Above we have established the what and how of the situation but one key area that also needs attention is the ‘Why’.

In a global trade context, several companies are working with the sole objective of providing businesses with fully digital ecosystems. However, it is true that the widespread adoption of digitization of trade finance will not occur overnight. It will only come slowly and through many different initiatives that supplement each other.

Companies offering Trade Finance automation services aim at allowing banks to react swiftly to the changing user and regulatory expectations. The API development approaches provide banks a chance to integrate with bank core, non-core, and 3rd party systems quickly. The staged trade product implementations offer innovative functionality and compliance parameters. Trade-specific workflow platforms ensure intuitive & intelligent transaction processing and real-time status updates for trade finance operations and to customer-facing departments. Alerts, Notifications, auto email communications make it possible for customers to receive timely updates for trade requests. Banks and technology partners work towards offering complete trade transaction life cycle management from initiation, regulatory submission, and certifications via portals.

Strengthening resilience and accelerating transformation in operations was of the essence as bank teams worked from home locations and were expected to perform AML and Sanction checks, Account & Transaction level checks, and document scrutiny, among key operational functions remotely.

In terms of possible future challenges that banks can expect, building up operational resilience will likely be a significant problem. Agility, undoubtedly, goes hand in hand with resilience. Banks would have to forgo perfection in favor of quick execution. Leaders would need to empower their front-line workforces with more decision-making authority by creating flatter team structures and revisiting responsibilities and accountability.

While digitization is widely seen as very important, while global banks have a digital strategy, only 46 percent of local banks have made some progress, only 17 percent have been able to implement digital solutions. Surprisingly, 20% are yet to see any practical benefits. The fraction of banks that claim to have tried to implement technical solutions but they turned out to be imperfect was about 22%, while 19% stated that they are currently having a hard time even matching that. The quantity of zero-touch trade finance processing remains restricted too.

Now, like never before, is the time for banks to leverage their relationships with technology providers to leverage vendor expertise in adding latest technologies, in consolidating data, and in assisting them in setting a fresh standard in the field of trade finance digitization. The future really is now

Source: Business World

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