Advancing Digital Trade: Q&A With Finastra’s Trade And Supply Chain Finance Head Iain MacLennan

Iain MacLennan, head of Trade & Supply Chain Finance at Finastra, explains why the time for truly digital trade is now.

Global Finance: Are we ready for the end-to-end digitalization of trade?

Iain MacLennan: Yes, the world is now ready for the end-to-end digitalization of trade and supply chain finance. We have been on the cusp of this for several years. We started on the journey prior to the pandemic, saw an acceleration through the pandemic, and now we have seen further fundamental changes in the past six months to push this forward. One of these was the Electronic Trade Documents Act, which allowed electronic trade documents to be [treated the same as paper documents] from late September 2023 under English law. Other countries, such as Germany, France and the Netherlands, are progressing with similar legislation. Another reason we are now ready is due to the potential benefits of digitization in terms of carbon-emissions reductions and business and operational efficiencies, such as real-time data capabilities, process effectiveness, et cetera. The International Chamber of Commerce has stated that the digitization of trade documents could generate up to £25 billion ($32 billion) in incremental growth this year, and up to £224 billion in efficiency savings.

GF: What are the benefits and challenges of artificial intelligence in trade finance?

MacLennan: AI has been used for document compliance checking and fraud solutions within the trade finance space for several years, and as AI develops, so will its use within the trade finance industry. To understand how, I asked ChatGPT where it would benefit the trade finance industry. Its suggestions included the extension of fraud detection and compliance management; the removal of manual processing through, for example, the automation of invoice or payment processing; insights into trade transactions and trade flows, as well as decision-making support off the back of this; and customer and colleague support via knowledge and transaction management assistance.

There will be obvious benefits from the continued development of AI in our business. However, there are potential challenges for AI, including data quality, cost, scalability, ethics and repeatability.

GF: How are collaborations driving trade finance solutions “as a service”?

MacLennan: We talk a lot about the trade ecosystem, which encompasses the physical movement of goods, documentary flow and the financial flows associated with the transaction. Within this ecosystem, there are a significant number of participants and information providers. We now see significant collaboration between the various participants, industrial bodies, application providers and others. There are also several partnerships being built to address significant systemic challenges, although we need to be mindful of several challenges, particularly in trade networks. Networks are notoriously difficult, and I use the Lord of the Rings analogy: “There will not be one network to rule them all.” Here, interoperability is key. We have been talking about interoperability for several years, but this is now at the fore. In terms of solutions as a service, we create additional value with our partners who operate as a service for our clients, allowing them to realize value from this relationship. At Sibos, we presented our concept of a trade finance utility with IBM where we see value in creating a trade finance stack as a service that a client could engage with, without having to onboard multiple partners.

GF: How can technology help the trade finance industry prioritize environmental, social and governance goals?

MacLennan: Technology will allow the trade finance industry to meet the required standards in ESG as they develop, so it isn’t really a case of prioritizing; it is really about execution and standardization. There are already several ESG solutions in the market. I work closely with one that provides automated ESG scoring. This partner has aligned itself with frameworks such as the UN Sustainable Development Goals and EU Taxonomy and collaborates with many financial institutions and other bodies to build its offering from a market perspective and not simply a “one bank view.”  This is where I believe the trade finance industry is ahead of other parts of the financial sector, based on my discussions with peers. Building frameworks, along with access to the required data sources, will be key to proving ESG compliance and addressing potential concerns on “greenwashing.” In addition, technology allows the opportunity to seamlessly update any such scoring based on material changes to the inputs, which means that you can have an up-to-date view on a transaction or counterparty based on current information.