Digitising Trade Finance

Digitising Trade Finance seeks to address the significant gap in global trade financing by working with the public and private sectors to identify and develop technologies and associated technology standards that facilitate connections between digital islands, trade finance inclusion for small and medium-sized enterprises (SMEs) and trade tech for emerging market economies (EMEs). Conceptually, there are two approaches to bridge the trade financing gap:  

1. Overcome the pain points due to information asymmetry between creditors and borrowers.

As identified in the 2020 TechChallenge, improved automation of corporate digital identity (DID), combined with technologies to digitise trade documents and to process alternative credit data, offer promising solutions.

In particular, by reducing the cost of identifying and verifying a company, a well running system of corporate DID could streamline labour-intensive, paper-heavy and often duplicated KYC and AML procedures that banks undertake to meet regulatory requirements. Corporate DIDs are more challenging than individual ones as they often involve complicated ownership structures, making it difficult to identify their ultimate beneficial owners. In the context of trade finance, DIDs also need to be harmonised across borders, highlighting the need for common standards.   

Once achieved, corporate DIDs can integrate with other trade tech solutions, some of which were showcased in the 2020 TechChallenge. For example, combining faster and more well rounded credit assessments with the use of alternative data and trade document digitisation can speed up and enhance credit extension to SMEs.

A combination of these approaches would lower the information barriers for SMEs and EMEs to obtain financing.  

2. Deal with ecosystem connectivity instead of pain points in a single ecosystem.

The aim is to increase interoperability amongst trade finance platforms so that network size and effects can be maximised. For instance, a trade finance API standard for cross-region data-sharing could link various ecosystems. The failure of many platforms to attract a critical mass of users is often due to a lack of end-to-end digitalisation. 

Trade tech has boundless potential to eliminate the inefficiencies prevalent in today's trade finance sphere.  Covid-19 has made it difficult to go about business in the traditional way, but its silver lining is that corporates realise the need to speed up the digitalisation of trade finance. In this project, we plan to pursue these goals by continuing to work with the public and private sector.