The digitisation of trade finance could have unintended consequences for the business beyond the hype that’s currently dominating headlines. Could recent technological advances play a role in bringing greater diversity to the trade finance industry?
The technology that is changing the way that trade finance is delivered could level the playing field for both those women who deliver the funding, as well as those receiving it. Or could it? Speakers at the third London-based GTR Women in Trade Finance event in December debated the issue at length.
What the panel could agree on is that technology is only part of the solution: there is no silver bullet, there needs to be a series of changes, actions and advocacy to bring about greater diversity and inclusion in the world of banking, more broadly, and trade finance, specifically.
“It takes more than technology to make a really big difference,” said Louise Beaumont, co-chair of techUK’s open bank working group, speaking to GTR on the sidelines of the event. “It takes board-level strategy, direction and courage; it takes significant cultural change, and it takes the willingness to do those things.”
While technological advances may not entirely melt away any inequality, they may facilitate a much-needed cultural shift.
It’s no secret that there are currently fewer women than men in top trade finance management positions. But the advent of new technology could mean that women have a real opportunity to become leaders in the space because it’s not yet an entrenched “boys’ club”. Technological disruption may indeed be necessitating the importance of driving more diversity into the trade finance space – because a new way of doing business demands fresh talent to drive the change.
What’s more, in the relationship-centric world of trade finance, which frequently excludes women, technology could attenuate the importance of these interpersonal relationships.
“A lot of trade finance is relationship-based, and that’s really where women are disadvantaged, particularly, for example, at a large bank that has been in action for hundreds of years and has a lot of rules,” Alisa DiCaprio, head of research at fintech firm R3, who up until recently had been a senior economist at the Asian Development Bank, told GTR. “The way that you get work done is to get around these rules by using your relationships – which may or may not be available to women, because there are so few of them.”
As processes are automated, and trade finance moves onto blockchain platforms, for example, it reduces the number of relationships that matter in the transaction, she explained. “I think that would be a great benefit to women when that’s an area where they struggle,” she said.
To illustrate her point, DiCaprio outlined that on average there are 19 steps in a letter of credit transaction – between the buyer and the seller, the buyer’s bank and the seller’s bank, and the logistics operator.
“When you move that onto the blockchain, the number of steps goes from about 19 to about 12. That’s a number of different relationships that you now don’t have to go through anymore as those processes are going to be automated,” she said, referencing one of the trade finance projects that R3 is currently running.
In other areas of technology, the emergence of online market platforms are already reducing the need for interpersonal relationships. Newly-launched CCRManager, for one, enables financial institutions to manage the entire process of distributing trade finance internationally to other banks, credit insurers and fund managers entirely online – without them having to send an email or make a phone call.
But some industry players remain unconvinced about technology’s impact in terms of eliminating the need for relationships.
“Technology is going to change the delivery and the client experience, but it won’t drive the agenda of diversity,” said Beatrice Collot, head of global trade & receivables finance at HSBC France, speaking at the event. In fact, she fears that it could make matters worse, because the people with the skills to use technology, particularly developers, tend to be men. “My concern is that if trade finance becomes a more technology-driven business, we may have more difficulties to hire women. There are still too few women undertaking engineering and computer science studies, so we really need to have action in that field to make sure that it’s going to change in the future.”
What’s more, bringing more women into technology-related roles will not necessarily result in greater diversity in senior management positions. One senior trade financier told GTR after the event that technology simply brings a measure of “invisibility” to those that facilitate it.
Nevertheless, R3’s DiCaprio argued that an increased use of technology does not disadvantage women.
“What we’re doing here is not switching over relationships with technology, we’re offering an alternative, so now you have the choice – you can either go through technology or you can go through the relationship that you were previously comfortable with or that worked better for you,” she said.
The customer perspective
For those receiving trade finance, DiCaprio referenced data that shows that women are more dependent on finance for trade. Women also face higher rejection rates when seeking financing, but are ultimately more resilient once rejected. Digitisation, she said, could make an immense difference to their ability to access the financing they need.
“As the process becomes more digitised, and you’re able to finance the trade transaction at different points in the transaction’s life cycle, this is going to be beneficial to women-led firms, because the constraints that they faced before won’t be as important,” she explained.
In countries where there is a restriction on movement of people – for security reasons, for example – greater digitisation could also mean that customers do not have to be physically present at a bank to deliver documents.
HSBC’s Collot remained reticent, saying that she is “not convinced” that technology will change the way that clients interact with banks.
“Technology will be an enabler. It will bring about greater transparency – in pricing, for example. What clients want from their banks is trust and delivery, which technology will help to enable. Banks will still bring value – but more transparently,” she said. “It makes no difference if you are a man or a woman.”
Certainly, technology as a mechanism for disbursing finance – whether to men or women – is hugely valuable. But the proviso needs to be that the design of the technology which enables the effective disbursal is executed while keeping in mind the needs of the end customer.
“It’s a circular problem: if you’ve only got blokes designing products for blokes, it’s quite likely that blokes will use those products and the rest of us will feel less welcomed, less targeted, and less open to it, because it doesn’t seem to be for us,” explained Beaumont. Ensuring diversity on one side of the equation, she added, enables it in the end result.
“You can use technology to create positive outcomes and you can use it to create terrible outcomes,” Beaumont said. “You’ve got to be doing it with a clear-sighted strategy and in a culture which enables good and positive outcomes.”