House banking industry
Iain MacLennan, Head of Trade and Supply Chain Finance at Finastra, explains why now is the time for truly digital trade.
Global Finance: Are you ready for end-to-end digitization of trade?
Ian McLennan: Yes, the world is now poised for end-to-end digitization of trade and supply chain finance. We've been working on this problem for several years. We started that work before the pandemic and experienced an acceleration through the pandemic. And now, over the past six months, we've seen further fundamental changes to move this forward.One of these is the Electronic Transaction Documents Act, which provides for electronic transaction documents. [treated the same as paper documents] Based on UK law, it will apply from late September 2023. Other countries, including Germany, France and the Netherlands, are enacting similar legislation. Another reason why we are now ready is the potential benefits of digitalization in terms of carbon footprint reduction and business and operational efficiencies such as real-time data capabilities, process effectiveness, etc. This is due to The International Chamber of Commerce has announced that the digitization of trade documents is expected to add up to £25 billion ($32 billion) this year and could lead to efficiency savings of up to £224 billion.
GF: What are the benefits and challenges of artificial intelligence in trade finance?
McLennan: AI has been used in the trade finance sector for several years to check document compliance and resolve fraud. As AI develops, we will see its use within the trade finance industry as well. To understand how it can benefit the trade finance industry, I asked his ChatGPT. The proposals included expanding fraud detection and compliance controls. Eliminate manual processes, such as by automating invoice and payment processing. Insights into trade transactions and trade flows, and support for decision-making based on this. Supporting customers and colleagues with knowledge and transaction management assistance.
It is clear that the continued development of AI will benefit our business. However, AI has potential challenges such as data quality, cost, scalability, ethics, and reproducibility.
GF: How is collaboration driving trade finance solutions “as a service”?
McLennan: We often talk about the trade ecosystem, which includes the physical movement of goods, the flow of documents, and the flow of funds associated with transactions. There are many participants and informants within this ecosystem. We are currently seeing significant collaboration between various participants, industry associations, application providers, etc. And while several partnerships are being built to address critical systemic challenges, some challenges in trade networks in particular need to be kept in mind. Networking is notoriously difficult. I use the analogy of Lord of the Rings. “There's not going to be one network that can rule them all.” Interoperability is key here. We've been talking about interoperability for a few years now, and now it's coming to the fore. From a solutions-as-a-service perspective, we create added value with our partners who operate as a service for our clients, enabling them to realize value from this relationship. Sibos announced a trade finance utility concept with IBM. There, we see value in creating a trade finance stack as a service that clients can engage with without having to bring in multiple partners.
GF: How can technology help the trade finance industry prioritize environmental, social, and governance goals?
McLennan: Advances in technology will allow the trade finance industry to meet the required standards on ESG, so it doesn't really need to be prioritized. The key is execution and standardization. There are already several ESG solutions on the market. I work closely with a company that provides automated ESG scoring. This partner is aligned with frameworks such as the United Nations Sustainable Development Goals and the EU taxonomy, and works with many financial institutions and other entities to develop a market perspective, rather than just a “one bank perspective.” We are building a service from. Based on discussions with peers, I believe this is where the trade finance industry is ahead of other parts of the financial sector. Building a framework and accessing the necessary data sources is key to proving ESG compliance and addressing potential concerns about “greenwashing.” Furthermore, technology allows the opportunity to seamlessly update such scores based on significant changes to inputs. This means you get an up-to-date view of your trade or counterparty based on current information.