Busting the eight myths of digital trade finance

By Simon Streat | 28 March 2017

Simon Streat, VP Product Strategy, Bolero International 

The digitisation of trade finance offers huge potential to deliver significant benefits to corporates, banks, carriers and other trading partners. As well as reducing the time, costs, and risks of trading, digitisation opens up a new level of visibility, from one end of transactional processes to the other, which brings clarity and oversight to all connected parties.

However, despite these crystal-clear advantages, the adoption of digitisation continues to be hampered by a number of myths, all of which need to be dispelled.

Here are the eight most common myths about digitisation, and why they need to be busted.

1. Digitisation has to be implemented via a ‘big bang’ approach

This is simply not true. Companies can proceed with digitisation at their own pace, integrating digital trade platforms into their own processes one step at a time should they so choose. Digitisation can be implemented minimally at the light-touch level, or can be wholly integrated. It is perfectly feasible to operate in a mixed environment, in which both paper and digital documents are used in response to requirements and business needs. Companies should use digitisation to address their own pinch-points, which may arise from the need to be paid more often or to get hold of goods more quickly.

2. Digitisation is not secure

Many businesses have a deeply-ingrained fear of using anything in the cloud, believing that they will be hacked, with devastating consequences. In fact, Know Your Customer regulations apply to all digital trade platforms, along with total control of access and configuration. Not only do participants know the identity of the other parties that they are dealing with, they are all also legally bound by the rules that govern participation. Communication controls, for example, mean that no message can be sent without a response – there must always be a return message to confirm to the parties that the message has been successful. In addition, there is a full audit trail, recording every amendment and interaction to provide effective supervision and reassurance.

3. Digital trade transactions are not legally-binding

Legal underpinning is one of the essentials of a digital trade solution. In Bolero’s case, counterparties must subscribe to a rulebook that is solidly founded on common law principles and is multi-jurisdictional. The rulebook is a multi-lateral contract that binds each user, with agreement on a common set of rules. These rules determine, for example, that electronic communications will be treated as valid and that no user will deny that it sent a message bearing its digital signature. This legal framework allows organisations to replicate the legal results currently achieved in a paper environment.

4. My bank does not support digitisation

More and more banks are subscribing to digital trade platforms. Bolero, for example, provides access to the largest network of banks, connecting over 65 banking groups from around the world and the uptake is only likely to grow. Banks already have plenty of experience of exchanging messages digitally; for the last 28 years, they have been using the SWIFT system. Any company wanting to shift to the electronic presentation of documents in order to reap the rewards of going digital may well find its bank is already participating.

5. This is a stand-alone solution and does not integrate with my existing business systems

Digital trade platforms can be partially or fully integrated with existing business processes and systems such as ERP and treasury management systems. Organisations should not be concerned about whether integration will succeed; they can adopt digital processes partially or wholly, according to their needs and the problems they want to solve, or the benefits they want to achieve.

6. Using digitised documents and instruments is expensive

Switching to a digital solution costs just a fraction of what is required to administer paper documents. Paper documents have to be manually checked and physically transported between counterparties, accumulating costs and taking up valuable time. Companies using electronic documents eliminate these costs and achieve further gains in efficiency e.g. by achieving faster reconciliation, being paid or receiving goods more rapidly.

7. It’s only applicable for international trade

The belief that digitisation only works in the context of international trade is also mistaken. For example bank guarantees and documentary collections are vital in many domestic transactions and are perfect candidates to be digitised. The digitisation of these documents, with controls on access and full audit trails, gives far greater security and protects all involved from common types of fraud.

8. Every party has to be digital

No, it is not necessary for every party to be digital, because all participants are subject to the  business flows and regulations that are written around the processes, which enable a mixture of both electronic and paper communications to be employed. The overriding factor is that all digital instruments comply with legal and regulatory requirements, just as their paper counterparts do. Using a combination of paper and digital will still yield savings, even if they are not as substantial as can be achieved through total adoption of electronic documents.

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