Can technology really transform trade finance?

Technology is changing trade finance, but beyond the buzzwords and positive sentiment, barriers to adoption remain. In this article our Head of Next Generation Platform, Jiameng Yu, assesses the progress that the industry is making – and the distance it still has to go.

The pain points of trade finance are well known. Prime suspects such as the lingering obsession with original documents (in some markets), the stubborn ghosts of manual processes and the large volume of data are almost making trade finance “mission impossible”. Luckily, technology is helping to conquer the “impossible”.

If one searches “How can technology transform trade finance?” on Google, the top 10 results present an (almost) uniform list of help at hand. Most of these were also predicted in Demica’s blog in April 2020 “Today’s technology decisions that will impact tomorrow”. However, with help at hand, challenges still abound.

Digitisation of trade assets

For technology to make a difference, information on the underlying assets need to exist in digitised format including any features essential to verify their genuineness and authenticity. In many markets, paper documents with original signature and/or seal stamped are still indispensable tools of risk mitigation.

The development of Optical Character Recognition (“OCR”) technology has significantly improved the efficiency of digitisation process. However, the accuracy of OCR does vary significantly from language to language. It has also been difficult to wean market participants off the love for wet-ink signature and/or original stamp in certain markets.

That said, the Covid-19 pandemic has made exchange of physical documents challenging and impractical. In China, the second largest economy in the world, where possession of the corporate seal has meant control over a company for decades (it took Arm two years to gain control of its China unit because the ousted ex-CEO had possession of the corporate seal), the use of digital signature and stamps has received legal recognition and has been very much encouraged since 2020.

How many ERPs are there?

We estimate there are several thousand versions of ERP systems/accounting packages co-existing globally. Each potentially requires a different way of extracting information and output data in a different format. This does throw a spanner in the works for effective trade network or meaningful data analytics.

Volume of data and calculations

Storing data costs. The more data one stores, the higher the cost. Trade Finance inevitably generate large volume of data over time. As well as storage cost, large volumes of data also put pressure on performance (i.e. larger pool of data are slower to query and analyse). Moreover, large volumes of data can also cause one to lose focus and direction in performing data analytics. Indeed, keeping storage and processing costs under control and maintaining focus of business insight discovery are recognised as two of the top 10 challenges in working with big data.

With the above-mentioned challenges in mind, Demica’s award-winning platform which allows users to configure input file formats and content according to their requirements is well placed in collecting, standardising and harmonising data. These “cleansed” data are then better prepared for one to “enjoy the technological fruit”. Our track record of having worked with hundreds of ERP systems is testimony to that flexibility. The Platform is also designed to process millions of items within a short period of time. That helps too.