Digitalisation in Trade Finance

Digitalisation in trade finance is gaining momentum. This is primarily due to the associated efficiency gains, cost savings, greater transparency, and reduced risks. The necessary legal framework and technologies have been further developed over the years. It has become clear that the core challenges are in creating common standards and ensuring interoperability.

The digital ecosystem now covers the entire supply chain process – from quotation to payment. There are many providers that specialize in different business areas, including document creation, compliance and KYC, financing, risk management or payment processing.

International trade is increasingly being conducted via digital platforms. They enable treasurers to process trading transactions more efficiently and transparently by integrating and automating various financial and trading processes: In addition to the multi-banking function, this also includes the company-wide central management of the risk portfolio. The platforms also serve as interfaces to other providers of digital solutions.

Various standards are required for these interfaces to function. There is a need for a standardized language for data and message transmission. Currently, the ISO 20022 format is established in interbank communication.

However, the introduction of standards and new technical solutions alone does not necessarily lead to interoperability between the different systems: If each solution provider offers its own interface, different interfaces must be managed. This fragmentation is inefficient, drives up costs and can hinder digitisation efforts.

Therefore, some organizations have already joined forces to enable interoperability and thus a resilient and global digital trading system. For example, Swift and the Banking Commission of the International Chamber of Commerce (ICC) agreed on a uniform standard based on ISO standard 20022 at the end of 2023. An ICC working group is currently creating general API specifications to enable the sending of guaranteed attachments.

In February 2022, five organizations from different sectors founded the FIT Alliance (Future of International Trade). The alliance of Bimco, DCSA, Fiata, ICC and Swift is working to raise awareness of the benefits of digitisation. It emphasizes the importance of common, interoperable data standards and legal frameworks across international platforms.

The aim is also to facilitate the acceptance and use of bills of lading by shippers, consignees, freight forwarders, regulatory authorities, banks and insurers. In addition, communication between these organizations and all parties involved in an international trade transaction is to be standardized.