Thanks to recent innovations including BPOs and electronic bills of lading, the trade finance industry’s days as a paper-driven, work-intensive silo are numbered. Digitisation has arrived, and if banks fail to get on board, they will find themselves left behind.</p> In the current post-crisis environment, efficiency is key. Digital technology has become an enabling force for customers along the global physical supply chain. From Coca-Cola’s warehouse automation to Amazon’s delivery drones; from Colombian coffee farmers’ use of mobile apps to check market prices to Hong Kong International Airport’s e-lock and GPS customs clearance systems; players along the chain are harnessing the latest in technology to stay ahead.</p> In contrast, the financial supply chain remains an inefficient, paper-based anachronism. Around $17 trillion worth of export and import trade is carried out each year, and according to Shipping Association BIMCO, each one of those shipments requires, on average, 36 original documents, 240 copies and the involvement of 27 entities.</p> There has to be a better way. But although there have been several attempts to computerise the process over the years, none has been successful.</p> Today, that is set to change. Market acceptance of technology-enabled interactions has come a long way since those early forays into digitisation, and corporates want to interact in their trade activities in the same way as they do with other sophisticated counterparties.</p> Indeed, in a recent J.P. Morgan trade finance client survey, 82% of respondents said that their clients are either thinking about or already moving ahead with trade finance digitisation. What do financial institutions need to do to keep up?</p> The majority—61%—of the financial institutions polled by J.P. Morgan are either starting to formulate a strategy or already have a strategy in place around digitisation, because clients worldwide are demanding from their banking partners the support they need to keep up in today’s fragmented trade environment.</p> Digitisation is not a goal in or of itself - it is a solution that can facilitate trade, and as more and more processes along the supply chain become automated, the industry should - and must - do more to drive its adoption.</p> “Digitisation is a strategic shift by corporates which banks must respond to,” says Mike Quinn, a managing director for J.P. Morgan. “Large corporates will eventually deal only with banks who are digitised. This requires a paradigm shift in behaviour for banks, but the impact will be huge.”</p> While there are hurdles to overcome, from investment budget to technology limitations, operating risk and compliance issues, digitisation offers a compelling proposition to banks as a way to reduce costs, enhance risk management and meet client expectations.</p> Digitising the trade finance process has real, tangible benefits. This is not a pie-in-the-sky initiative, but a real sea change that translates directly to greater efficiency, improved working capital for clients, decreased risk along the global supply chain, and better margins and reduced costs for the institutions that finance global trade.</p> This growing use of technology also creates a shift in the balance of power. Digitisation isn’t just about elimination of paper. It breaks the hold of banks around client access.</p> “If a bank is SWIFT 798-capable, you can interact with them. You’re not restricted to bank-owned platforms,” explains J.P. Morgan’s Quinn.</p> This is an industry-wide movement, and one which makes collaboration necessary. To move forward, priority needs to be given to the development of common technology platforms, a framework of standards for the new environment, and training and sensitisation for clients.</p> In a sector which has traditionally been slow to embrace change, this is one of those rare occasions where a new direction can truly be taken for the benefit of all. The message is clear: digitisation is the future; ignore it at your peril.</p> *Article courtesy of J.P. Morgan</strong></em></p>