Brisk advancements in technology demand equal innovation in averting risk, writes Sriram Muthukrishnan, group head of product management, global transaction services at DBS.


Digitalisation is redefining how trade is conducted. It is playing an instrumental role in supporting commodities trade and financing by making trade more efficient, transparent and secure.

These attributes have never been more essential than in today’s trade landscape, one characterised by supply chain disruption, geopolitical uncertainty and macroeconomic upheaval. And the result is an increasingly fragmented financial system requiring banks and non-bank financial institutions to build up adequate capital allocations, maintain ample liquidity and reserves, while de-risking and diversifying to establish resilience for unforeseen circumstances.

In recent years, some major banks have increasingly de-risked by terminating correspondent banking relationships, consolidating their portfolios, cutting large commodity finance exposures and enhancing their overall compliance frameworks. Some are of the view that the practice could lead to higher costs and reduce the availability of credit, while others argue that de-risking is simply a response to the commercial realities of the market.

These trade-offs could become a thing of the past as banks digitalise their operations and bring enhanced monitoring capabilities – and more trust – into trade financing.


Enhancing security, speed and accuracy

Generally speaking, the banking and financial services industry has been quick to embrace digital technologies, though some segments remain yoked to paper processes. Traditional trade finance, for example, is still a largely paper-driven business, requiring traders to track extensive paper trails that could involve as many as 36 original documents and 240 copies across 27 parties for a single shipment by sea.

Not only is this a tedious process, but one that creates significant potential for fraud due to a lack of transparency or monitoring, or the adoption of alternative processes to make up for the lack of efficiency – an example is the use of letters of indemnity in place of bills of lading.

By digitalising trade finance workflows, there is improved information-sharing and transparency of data across all trade stakeholders. A chief benefit will be the ability to expand financial inclusion, bridging the US$2.5tn trade finance gap in the market as reported by the Asian Development Bank.

Supply chains contain a rich source of financial and non-financial data. By tapping this data through digital technologies such as APIs, banks can embed trade services seamlessly where customers operate, and the added visibility can also help democratise financing at scale, down the supply chain.

Digitalisation also undoes disparate layers of manual processes, bringing about greater efficiency and ensuring business continuity in cases of business disruption. A recent case in point is the global pandemic and national lockdowns, where goods were incurring demurrage charges at ports, and the physical paper bill of lading had yet to arrive to claim the goods in a timely manner.

Over time, the downstream effect of digitalisation is that more data visibility can support banks in assisting customers in achieving their sustainability goals. This is a growing concern for the industry at a time of intensifying climate change and public support for decarbonisation. Banks have a social responsibility to mobilise working capital towards positive ESG behaviours and incentivise decarbonisation efforts. Traceability enabled by digital data plays an important role in providing additional value in the areas of emissions validation, claims certification and supply chain visibility. Through enhanced data sharing between banks and their partners, banks can support the propagation of relevant goals down the supply chain by incentivising adherence to sustainability metrics and helping tackle scope 3 emissions.

Enhanced data sharing between various stakeholders can also strengthen risk mitigation by tapping into trusted digital data at source to make data-led credit or lending decisions. This reduces forgery and manipulation, especially since these key documents can move between the hands of various parties.


Bridging the trade ecosystem through digitalisation

DBS has pioneered efforts on this front, primarily through its work as a founding member of SGTraDex, a digital data highway that facilitates the trusted and secure sharing of data between supply chain ecosystem partners.

Through SGTraDex, data is leveraged at source to provide confidence in the authenticity of trade and avert the risk of fraud in holding certificates and bunker delivery notes, for instance. The innovation also employs Monetary Authority of Singapore GreenPrint to validate green certificates to uphold the sustainability initiatives of clients and their trade finance requirements.

DBS has also led the conceptualisation and development of the Trade Finance Registry (TFR), an initiative managed by the Association of Banks in Singapore. TFR will serve as a central utility for all trade finance transactions that are financed by banks in Singapore, mitigating the risk of duplicate financing for the same underlying trade. Enhancing trust and confidence among banks and traders will further strengthen Singapore’s role as a key trading hub. Tapping into API connections with SGTraDex, TFR will also be able to provide validation on the authenticity of the trade transactions.

Most recently, the world witnessed the first fully paperless cross-border transaction between Singapore and India, which involved shippers, traders and bankers, facilitated by DBS, among others. TradeTrust developed by Infocomm Media Development Authority, a statutory board under the Singapore Ministry of Communications and Information, leverages the United Nation’s Model Law for Electronic Transferable Records and provides a framework to validate the authenticity and provenance of documents as well as effect title transfer of documents such as digital bills of lading. McKinsey estimates that an electronic bill of lading could save US$6.5bn in direct costs and enable US$40bn in global trade.


Charting the course

In the long term, the success of these projects will depend on the conviction at the highest levels between different jurisdictions and industry bodies to develop common and interoperable standards and legislations that can bring together banks, buyers, sellers, shippers, logistics providers and others into the trade ecosystem with a common cause. In many jurisdictions, the necessary regulatory frameworks are still lagging behind industry needs, but there is movement in the right direction.

As banks de-risk in an uncertain world, DBS is playing an essential role in enabling trade digitalisation with the use of various digital solutions. This is augmented by our strategic partnerships in the trade ecosystem, e-commerce and procurement platforms, presence in multiple markets, and an extensive knowledge of Asia’s complex markets and nuances. Furthermore, our support towards the FIT Alliance electronic bill of lading (eBL) declaration to facilitate the universal adoption of a standards-based eBL is proof of our deep commitment to advancing innovative digital solutions for global supply chains.

As the industry closely observes the evolving landscape of trade influenced by technology, DBS is navigating the path of trade digitalisation, leveraging its position as a strong Asian bank uniquely equipped with the knowledge to assist clients in traversing disruptions, uncertainties, and upheavals in the global market.