Digitalisation of trade and sustainability are critical elements of global trade finance and have the potential to deliver outsized benefits. Daniel Lit, group head of documentary trade, Global Transaction Services at DBS, explains how the collaboration among trade platforms, technology vendors and governments can accelerate industry progress towards realising these gains.
Trade digitalisation has made rapid progress in response to the pandemic as corporates recognised the importance of digitalising their treasury and trade finance functions to ensure business continuity and resilience. This shift accelerated during the pandemic and has since been sustained, with digital trade volumes on an upwards trend. Meanwhile, sustainability considerations have become a crucial aspect of businesses’ long-term strategic planning, including selecting a suitable trade finance provider.
These advances go hand in hand, as digital data exchange often translates into reducing paper consumption, contributing to saving trees – a small first step to improving sustainability. More importantly, digital supply chain finance solutions are potent tools in encouraging positive environmental, social and governance (ESG) behaviour in return for unlocking supplier liquidity. Sustainable practices and evaluation are not limited to individual businesses, but encompass their entire supply chain. Therefore, it is essential to address challenges, such as insufficient visibility and data, as well as having clear metrics for tracking progress effectively.
Elsewhere, the industry has been undergoing consolidation among both trade platforms and technology vendors, with the acquisition of Bolero by WiseTech, essDocs by Intercontinental Exchange (ICE) and GlobalTrade Corporation (GTC) by Komgo. These developments are paving the way for a collaborative and sustainable digital trade ecosystem, where players can leverage their resources and expertise to overcome common challenges and drive innovation, resulting in a more efficient and connected industry.
Sustainability, and how trade digitalisation supports it
It is important not to conflate technology with trade digitalisation and focus instead on developing practical solutions for real-world issues. One example of the risks of such conflation is blockchain, which has seen various pilots and proofs of concept either abandoned or redirected toward alternative solutions.
This need for technology to deliver practical benefits in the trade space is particularly relevant for promoting sustainability. Based on a DBS study, only 37% of SMEs surveyed have a clear road map for achieving their sustainability goals. Currently, many companies rely on resource-intensive manual processes, such as compiling spreadsheets and surveys, which can be both costly and cumbersome. This approach poses a significant barrier, particularly for SMEs, who struggle to start on their ESG journey. Our experience has demonstrated that a digital-first strategy is the most effective approach to helping clients reimagine and reshape their supply chains, improving resilience, operational efficiency and access to funding. We implement this through co-creation with our clients and partners to integrate banking services within their ecosystem through APIs, streamlining client journeys, meeting their trade finance needs and building supply chain resiliency.
A practical example of the benefits of increased visibility in supply chain management is the ability for buyers to trace a product back to its original supplier, while also monitoring all the intervening processes and participants. Digital technology, such as the Internet of Things (IoT), plays a vital role in supporting this by enabling corporates to track and retrieve sustainability-linked data continuously. This enhanced transparency facilitates greater adherence to sustainability metrics, while also mitigating risk and imbuing trust across supply chain networks. Furthermore, it allows a bank to pay the seller more quickly while also offering pricing incentives for sustainably sourced products.
To effect change more broadly and lower the entry barrier to sustainability, policy and taxonomy standardisation are crucial to providing clarity and making sustainable trade finance more inclusive. The industry at large recognises the significance of this approach, as demonstrated by both private and public initiatives such as The Green Finance Industry Taskforce convened by the Monetary Authority of Singapore (MAS), which seeks to establish a framework for directing working capital towards green business practices. Combining such standardisation with digitalisation can drive change throughout downstream and upstream supply chains with clearly defined ESG metrics and more efficient digital monitoring.
Industry collaboration: key to growth
Although the combination of trade digitalisation and sustainability are key to accelerating trade growth by reducing friction and enhancing transparency, they cannot operate in isolation. Intergovernmental and industry level discussions and co-operation are essential to ensuring that they deliver their full potential. There has been encouraging progress here, including the digital economy agreements between Singapore and various key trade corridors, such as the UK, the Infocomm Media Development Authority TradeTrust, and the UN Model Law on Electronic Transferable Records pilots.
A practical illustration of the benefits of collaboration is evidenced by DBS’s successful completion of the first live transaction on the Singapore Trade Data Exchange (SGTraDex) platform, a digital data exchange that facilitates trusted and secure sharing of data between supply chain ecosystem partners. Through the utilisation of regulated mass flow meters (MFMs) and by collaborating with MFM services providers to capture data at source, DBS, Kenoil Marine Services and its counterparties were able to digitalise bunker delivery notes. This enabled them to validate transaction details in a timely manner and ensure the authenticity of trades. Enhanced processes such as this have the advantage of fostering greater trust and transparency across the whole trade ecosystem.
Digital connectivity also plays an increasingly important role in facilitating collaboration, such as in DBS and GS1 HK’s partnership to provide local SMEs with on-demand digital trade financing. It does so by enhancing the exchange of information between systems by aiding data extraction and collation from multiple sources, which in turn supports the use of powerful analytics and greater automation of processes.
Nevertheless, while all these collaboration initiatives are obviously positive for accelerating trade digitalisation and sustainability, there still remains a need for even greater co-operation and it is also crucial to eliminate implementation barriers to nudge global trade participants beyond the tipping point.
Critical mass adoption: how to pass the tipping point
To maximise the benefits of digital trade, collaboration among various entities such as governments, NGOs, banks, trade platforms and technology vendors is crucial. However, individual trade players hold the key to greater adoption and network effect, which is critical to the industry transformation. To encourage the transition to digital trade, it is important to optimise factors such as cost, ease and speed of implementation and everyday use.
Without these optimisation benefits, businesses will naturally be more inclined to stick with existing non-digital methods. Therefore, bank solutions for digital trade that can minimise cost, speed and ease of use barriers will foster greater digital adoption generally, but especially among SMEs, who typically have fewer free resources than larger corporates in terms of technological bandwidth. DBS is at the forefront of this effort, partnering with industry players to assist our clients with the transition to digital trade. We have made significant investments in rolling out solutions that help our clients improve their working capital cycle, such as simplifying the onboarding process for suppliers and distributors, reducing the turnaround time from over a week to less than a day.
While larger corporates may have greater technological resources than SMEs, they will naturally expect maximum trade network access in return for their implementation efforts and investment. Hence, the scale of digital trade interconnectivity a bank can deliver becomes of critical importance.
Nevertheless, while banks provide the necessary solutions and governments can provide incentives to minimise these various barriers, there is still an underlying need for traders to show willingness to adopt digital trade and sustainability practices. This willingness will enable them to leverage the benefits of digital trade, including greater efficiency, transparency and access to new markets, while also contributing to a more sustainable future.
The past year has seen a significant shift in the digital trade space. Previous attempts to dominate segments of the market have been supplanted by a more collaborative approach, which bodes well for both digitalisation of trade and sustainability. Both these are an intrinsic part of global trade finance and have the potential to deliver an outsized impact on improving efficiency, lowering costs and delivering a greener future, but only if trade players continue to align their efforts to minimise the standards gap for the greater good.
According to a recent Accenture survey, companies currently regard inventory financing as of primary importance.
Conveniently, it is also an excellent example of where collaboration and digitalisation can help.
By collaborating with warehouses or terminals to provide digital data at source, IOT providers can deliver real-time data feeds to workflow platforms to enable relevant bank monitoring and/or controls in relation to company inventories.
This enhanced visibility and control provided by digitalisation makes it possible to meet clients’ changing inventory financing needs rapidly and with minimal implementation times.