Digital Innovation in Trade Finance – Have we reached a tipping point?
A BCG white paper, written with SWIFT’s contribution
The Boston Consulting Group (BCG) published a white paper, to which SWIFT contributed, on digital innovation in the area of trade finance. Trade finance has lagged other financial services in moving from paper to digital. The number of players and stages in the trade transaction flow did not help to standardise processes: up to 20+ entities can be involved in a trade transaction (e.g. importer, exporter, importer’s bank, exporter’s bank, shipper, freight forwarder, customs authorities, etc.). Nor did it help to have to deal with multiple industries and multiple geographies.
But global trade is facing a challenging period, the white paper states:
- BCG’s Trade Finance Model predicts that global trade flows will grow 4.3% p.a. to US$18.7 trillion by 2020
- Growth in trade finance bank revenues is expected to outpace this, and grow 4.7% p.a. to US$44 billion by 2020
This challenging period creates the perfect ground for exploring opportunities across the value chain to drive efficiencies and increase the overall market size. The processes that currently support the global trade finance ecosystem are labour- intensive and predominantly paper-based:
- BCG estimates that documentary trade generates four billion pages of documents annually, with over ~200 billion data field interactions – equating to ~5,000 data interactions per transaction
- However, only 1-2% of these interactions are value-adding, and the vast majority of data is redundant and simply transferred to the next party in the value chain
- Indeed, BCG estimates that more than 90% of the data field interactions in trade finance could be simplified or eliminated altogether through effective digitisation
Trade Finance is calling out for a digital solution that allows for many of these processes to be simplified, automated or eliminated. As a result, it is likely that the trade finance landscape will look very different in the next 5–10 years, with reduced costs and complexity giving international trade a boost.
The white paper concludes with a call to action for banks, corporates, facilitators and governing bodies to continue to work together to establish a new framework that works in a digital world.
To learn more about the Digitisation of trade finance, download a copy of the BCG white paper here.