Societe Generale’s Christian Cazenove, group head of trade oversight, Charline Profillet, deputy head of structured trade finance, and Florence Jehan, head of trade innovation, outline the bank’s aim of being at the forefront of the future of trade finance.
Imagine the time it takes to process the paperwork for exporting a container load of furniture travelling from the factories of Guangzhou to customers in Paris. At present, handling all the various trade finance documents might take as long as three weeks. Yet if the paperchain were digitised it could take as little as five days.
Indeed, every year about 4 billion documents are created to support global trade, according to estimates from the International Chamber of Commerce. Each cross-border transaction requires up to 36 documents and 240 copies on average. And less than 1.5% of these documents are digitised.
In an age of growing digitalisation, this extensive use of paper established over centuries of international trade is increasingly archaic. Making trade’s plethora of paper documentation – including bills of lading, bills of exchange, commercial invoices, certificates of origin, etc – electronic would have major advantages, for individual companies, banks, and arguably for the economy as a whole. It would cut down import/export times, reduce manual processing of documents, free funds for financing SMEs and even allow large companies to monitor the carbon emissions in their supply chains.
While progress has been slow, momentum for change is building at last, as a United Nations-led initiative is making electronic transferable records a legal basis for import/export transactions. In 2017, the United Nations Commission on International Trade Law (UNCITRAL) introduced its Model Law on Electronic Transferable Records (MLETR) – described as a “big bang” for the entire trade finance industry. Then, in 2021, the G7 group of countries committed to accelerate the adoption of MLETR in an important step. To date, only seven jurisdictions have transposed MLETR into national law, but as many as 100 countries are currently working to do so, with major G7 trading nations such as France, Germany and the UK looking set to do so in 2023.
Simplifying a US$32tn ecosystem
Establishing this legal framework is only the beginning – the advantages of digitalising trade require a transformation across the whole value chain, including importers and exporters, banks, insurers and shipping companies. Many of these parties are already aware of the huge benefits of digitalisation, so that they are prepared to make the investment needed and to adopt a mindset of putting digital first.
Yet our experience shows that a lot of companies are hesitant about making the transition from paper to digital documents. After all, these documents facilitate global trade that reached a value of almost US$32tn in 2022, according to the UN trade and development agency (UNCTAD). In the past two years, we have conducted a major exercise to interview our corporate clients across the world about their digital maturity and needs, across all areas of transaction banking. When it comes to trade, we discovered that apart from some of the largest corporates, many are taking a “wait and see” approach to digitalisation. They want to see how the market evolves before committing themselves to investing in new technology.
At Societe Generale, we believe that corporates have a lot to gain from the digitalisation of trade finance and we have an opportunity to help our clients to identify the best solutions as fintechs develop them. That’s why we are not only advocating for the speedy adoption of MLETR through Paris Europlace and the French International Chamber of Commerce, but also working with all parties in the trade finance value chain to unlock the potential of digitalisation for simplifying the trade finance ecosystem. To do so, we are partnering with digital trade finance platforms already on the market and have launched a start-up accelerator programme, “Payment & Transaction Banking Accelerator by SG”, to quickly bring new solutions to our clients.
Supporting platforms and accelerating fintechs
As a first step towards digitalisation, we have partnered with the Komgo digital trade finance platform that was established in 2018 with Societe Generale among its founding shareholders. At the end of 2022, Komgo acquired the rival GTC platform to become the largest digital trade finance platform, connecting corporates with all their trade finance banks, irrespective of what back-office system they use, and covering the complete range of payments instruments. Through integration with both the bank’s back office and corporate’s IT systems, this introduces straight-through processing, leading to significant operational efficiencies.
Turning to fintechs, Societe Generale launched the “Payment and Transaction Banking Accelerator by SG” in 2022, aiming to speed up the development of transaction banking innovations. Some of them are linked to trade finance to make digital services available to our clients.
We aim to develop innovative new services far more quickly than before.
Among the start-ups that have been selected, two fintechs will develop use cases. One of them, Wave BL, is developing a use case for presenting trade documents electronically, thus tackling the central issue slowing down trade finance today by removing the practical need for paper documents and paving the way for streamlining trade.
Accounting for CO2
The other fintech, CarbonChain, is working with Societe Generale to build a use case for measuring CO2 emissions throughout companies’ supply chains. CarbonChain already supplies similar carbon accounting, data and analysis to the commodities sector. In doing so, it is helping Societe Generale to identify the carbon emissions in its commodity trade finance portfolio, and support clients on their carbon reduction journeys.
CarbonChain has developed a powerful software tool for measuring all of the emissions associated with a product step by step – from production to transportation and beyond. We believe that CarbonChain’s solution for trade finance has significant potential and could prove disruptive. Notably, its platform could be used to monitor key performance indicators (KPIs), showing where companies can reduce CO2 emissions in supply chains. The same KPIs could then be used to verify any resulting reductions in emissions, enabling Societe Generale to reward them with lower costs. Societe Generale is already piloting access to sustainability-linked loans tied to climate-related KPIs with one of its clients via the CarbonChain platform.
While sustainable trade finance remains in its early stages compared with other areas of sustainable finance, it has potential for rapid growth once the right solutions are made available. The market for banks’ sustainable trade finance and cash management products will grow at a rate of 15-20% annually until 2025, according to estimates from McKinsey & Company.
Achieving the full potential of digitalisation
Through tools such as these, we believe that Societe Generale can pioneer digital trade finance to help our corporate clients. By acting as a partner in this way, we can help them to adapt to the greatest change in trade finance in its history, as the paper documents used for centuries go digital. Through our research, partnerships and investments in fintechs, we will effectively guide them towards the best solutions and help them overcome their hesitancy.
As MLETR is rolled out across countries, so the momentum for trade finance to be digitalised is quickly growing. As a leading trade finance bank, it is our duty to support clients through identifying and developing the best ways of harnessing electronic documentation to cut through the old inefficiencies while still fulfilling trade finance’s risk mitigation role.
The prize is substantial. On a global level, digitalising trade can partially bridge a trade finance gap that the Asian Development Bank estimates reached a record US$1.7tn per year in 2020. This gap is the unmet demand for trade finance.
Through introducing greater transparency, digital trade finance would help to free up funding for SMEs, thus fuelling economic growth and creating jobs.
For individual companies, digitalisation will cut the time taken to trade between centres such as Guangzhou and Paris, with significant operational and financial advantages. Digitalisation also has the potential to verify environmental standards throughout companies’ supply chains as the first step towards improving environmental performance.
To help our corporate clients make this historic transition, Societe Generale is seeking to pioneer the transition. We are making long-term investments in the future of trade finance that should allow our clients to achieve their full potential.
- With more countries introducing MLETR into their national laws, digitalisation of trade finance is quickly gaining momentum
- Yet many companies are hesitating before making the investment required to digitalise their trade finance operations
- Societe Generale is seeking to act as a catalyst, guiding corporate clients to the best digital platforms and digital technologies
- The potential rewards are huge in terms of bridging the estimated US$1.7tn trade finance gap, and operational, financial and environmental benefits at company level