The Innovators 2020: Trade Finance

A once-quiet corner of banking is harnessing new technologies to reduce paper, speed up supply chain finance and onboard new financing sources and solutions.

Once upon a time, trade finance was a part of a bank’s business that no one really talked about. There wasn’t really much to say; as the business had changed relatively little since its inception hundreds, if not thousands of years ago. In the last two years, however, trade has become as much a hotbed for innovation as other areas of banking, such as payments.

A range of technologies—application programming interfaces (APIs), blockchain, artificial intelligence (AI), machine learning, optical character recognition (OCR) and electronic trading platforms—have made it easier to automate parts of trade finance that until recently were slow, cumbersome and highly manual. Alternative financing solutions have also emerged that address financing needs at different stages in the supply chain and market segments underserved by traditional banks.

This year’s Most Innovative Trade Finance Banks include a number of institutions and fintech developers that are lowering the barriers to entry for small and midsized enterprises (SMEs). One of the most exciting initiatives in this area is the first fully digital trade finance bank, Anglo-Gulf Trade Bank, who partnered with Microsoft for infrastructure and digital tools, while enterprise IT consulting firm, Publicis Sapient provided strategic digital transformation expertise and integration to create “digital-first” and “data-driven” solutions to plug the $1.5 trillion tradefinancing gap identified by the Asian Development Bank (ADB).

Development banks are also innovating. The ADB developed a set of trade finance knowledge solutions that highlight various underserved segments or market gaps in trade finance and the associated impact they have on economic growth. The bank’s 2019 Trade Finance Gaps, Growth, and Jobs Survey identified women-owned businesses as the most underserved and proposed solutions such as the use of fintech and digitization to help reduce market gaps. It also highlighted the need to develop digital standards and protocols for driving interoperability among importers, exporters, customs, warehouses, insurers and banks.

Artificial intelligence is also simplifying the credit-scoring process. London-based Tradeteq’s “neural-network” AI uses peer comparisons, historical data and degrees of supply chain reliability to devise credit scores. Its credit-scoring model was recently chosen by Singapore’s government-backed Networked Trade Platform, an information management system and innovation hub, to increase companies’ access to financing.

Triterras’ Kratos platform, a custom-built, blockchain-enabled, end-to-end trade finance and trading platform, went live last June. Exclusively focused on SMEs, it opens the field to a new group of investors: alternative lenders and private equity managers. Kratos’ trade finance module, launched earlier this year, allows borrowers to connect with lenders through the platform and helps lenders track their investments using customizable data visualizations.

Standard Bank’s OneFarm initiative has had a successful proof of concept for its platform to help Africa’s smallholder farmers to access a range of services including a digital identity that reflects their risk and standing in the farming community, weather alerts and information on farming, and insurance and other financial services that increase financial inclusion and reduce credit risk.

New Financing Solutions

Other innovators in trade finance are using digital technologies to remove paper from trade, speed up the supplier onboarding process for supply chain finance programs and roll out new financing solutions to segments of companies’ supply chain.

UniCredit’s Trade Finance OCR (TFO) uses OCR technology to scan trade-finance documents so they can be automatically integrated within the bank’s digital workflow, lowering the risks and costs associated with handling paper.

DBS Bank’s Digi-Onboarding solution also uses OCR as well as facial biometrics and APIs to quickly and seamlessly onboard suppliers, reducing the need for complex or cumbersome account-opening processes. As part of its mission to digitize trade, last year, DBS launched a number of APIs. Documentary trade transactions such as letters of credit are now available via APIs, as well as supply chain transactions for open account trade. “Trade involves so many people and documents, but because of the capabilities we’ve built we’re now able to go to any customer and enable this journey to happen a lot faster,” says Raof Latiff, group head of digital, Institutional Banking Group and also of Global Transaction Services Product Management at DBS. “We’ve changed the workflow process—all trade documents (invoices, purchase orders and shipping documentation) now go via the API.”

Looking ahead to the future, Latiff says the “internet of things” (IoT), including sensors, communications and analytics, will allow the bank to go much deeper into the supply chain and becomes a strong basis for financing. “As we move forward, our clients want transparency of the second and third tiers of their supply chains,” he explains. “We need to understand everyone involved in the supply chain end-to-end. If we have a better understanding of what is coming from whom, its frequency and pattern of settlement, this would feed into our digital credit models and then we can use AI and machine learning to determine how much we should lend to tier two and three suppliers.”

IoT technologies, such as sensors and cameras in warehouses, could also help banks get more comfortable with inventory financing. At the moment, Latiff says banks are reluctant to finance inventory, because they don’t know whether the goods exist or not. But he says cameras and sensors could track the amount of inventory available. In the oil and gas industry, the IoT is helping companies keep track of oil levels, quantities and grade. In the rubber industry, sensors and tags on trees can help companies determine whether the rubber is grown sustainably or not.

Bank of America’s supplier enablement tool takes supplier onboarding to the next level using AI-powered data analytics to prioritize onboarding of suppliers based on spending information and other forms of bank and industry intelligence. It is scheduled to go live this month (June). Another supply chain solution, Gulf International Bank’s electronic supply chain finance, provided an e commerce company with a portal where more than 200 suppliers can raise invoices to access financing, which is usually disbursed within minutes of the invoice being approved for payment.

Similarly, Kotak Mahindra Bank’s digital vendor-financing solution with dynamic discounting provides vendors with financing in just two days and enables banks to finance a much larger number of vendors. Vendors approve invoices for financing using digital signatures, and invoice data is automatically captured from the anchor corporate’s enterprise resource planning system.

Trade Finance Innovators 2020

Anglo-Gulf Trade Bank The world’s first fully digital trade bank, using APIs and Microsoft Azure cloud
Asian Development Bank Trade Finance Knowledge Solutions
Bank of America Supplier Enablement Tool
DBS Digi-Onboarding
Gulf International Bank Electronic Supply Chain Finance
Kotak Mahindra Bank Digital Vendor Financing Solution with Dynamic Discounting
Standard Bank OneFarm
Tradeteq Tradeteq (Credit scoring and electronic trading platform)
Triterras Kratos platform
UniCredit Trade Finance OCR (TFO)