As Covid-19 spread across the world, employees were sent home and forced to adopt digitised methods to do their work. In trade, ‘make do’ solutions were introduced to carry out transactions and keep goods moving, causing alarm bells to ring over the risks of digitalisation, writes Maddy White.


Digitalisation brings many opportunities to trade finance: the removal of paper and the introduction of e-documents allows for secure end-to-end transactions, and the prospect of a highly efficient way to trade.

However, the industry has been slow to embrace digital technologies, clinging to its paper-based systems and outdated processes. But, as Covid-19 swiftly made its way around the world at the start of the year, triggering countries to enter strict lockdowns and slowing down couriers carrying important trade finance papers, parties involved in global trade were rushed to implement digitised methods to continue trading.

Although these quick-fix measures helped to get business moving, they may not be sustainable in the long term because they have yet to be converted into structural solutions within an adapted legal framework. As such, while digitalisation already came with threats, such as fraud and cyberattacks, the growing problem of digital islands, and the lack of digital infrastructure in emerging markets, when efforts were boosted, so were those risks.



As corporates and banks went into panic mode amid the pandemic, ramping up their digitalisation efforts to ensure trade could continue, the target for fraudsters grew.

Bankers were no longer able to visit the collateral they were lending against, providing an opportunity for scammers to potentially falsify documents and accounts, securing loans against non-existent collateral.

Sandra Primiero, global head of structured commodities trade finance and commodity trade finance at Deutsche Bank, tells GTR that this is a concern for many banks. “If we are lending to clients against collateral it is extremely important to be able to visit the site with that client – you cannot skip that. Right now [under lockdown], that is a concern for banks, as site visits form an integral part of due diligence for facilities which are secured by physical collateral.”

In goods’ trade, fake Covid-19 shipments have been widely reported. Interpol revealed in April that a complex fraud scheme using compromised emails and payment fraud involving the sale of non-existent masks had been exposed by banks and authorities across Germany, Ireland and the Netherlands. The European Banking Authority (EBA) had warned of the threat of Covid-19-related scams with regards to international trade only a few weeks earlier.

In an effort to make medical trade more transparent and lower financing risks, the Asian Development Bank (ADB) launched a new supply chain mapping tool in June. It enables governments, banks, investors and healthcare professionals to trace the companies that make each component in key products such as gowns and ventilators, down to the metal and rubber that goes into each part. By ensuring legitimate makers, the risk of fraud is decreased, meaning lenders can finance trades more easily.

Some believe that if a big fraud occurred in the world of trade at one of the larger banks it could dampen the optimism around digitalisation generally, as well as potentially reverse some of the measures put in place.

“When you look at the short-term measures that have been taken, if we see a major fraud happen or something big occur at one or some of the key institutions, that might kick things backwards,” says Michael Vrontamitis, head of trade for Europe and the Americas at Standard Chartered.



With temporary solutions, such as sending images of signatures rather than authorised electronic signatures, implemented at the peak of the Covid-19 crisis, the risk of cyberattacks on entities increased.

Trade has been rocked by cyberattacks in the past. The NotPetya attack by Russian authorities in 2017, which primarily aimed to target Ukrainian companies, caused shipping giant Maersk’s computers and operations to shut down, costing the company hundreds of millions of dollars in damages. Malware, or malicious software, was embedded into the upgrade of the commonly used Ukrainian tax software, meaning any company that used this software was exposed.

“In the pandemic we saw that it was, in fact, possible to go fully digital in an emergency,” says Alisa DiCaprio, head of trade and supply chain at R3. “In the moment, the rapid digital responses were sometimes a bit slapdash. Everyone just scaled up whatever they had. You saw things like customers taking pictures of signatures and emailing them when in-person interactions weren’t possible.”

She explains that banks are making a big effort with existing clients to keep trade moving but that the way solutions have been implemented are not always viable in the long run. “Some of the creative solutions that had to be put in place are, of course, not sustainable. Regulations still need to change and behaviours still need to adjust.”

One way of sending signatures that cannot be manipulated is through the DocuSign e-signature product. But DiCaprio points out that DocuSign is expensive, adding that, in some instances, it is not possible to put in place a more efficient and secure digital system because of economic reasons.

“While these tools are certainly available, not every business can afford to use them. At R3, we were still occasionally using physical contracts that were being signed and sent back and forth because either our partners required them or because not every person in that company had access to a digital signature platform, understandably,” she says.


Digital islands

As more trade finance platforms spring up and move past pilot phases into production, the issues of digital islands, interoperability and a lack of standards could worsen.

In trade, digital islands occur when individual solutions are created to make certain processes more efficient, such as converting paper documents into digital ones or automating document checking. These solutions are not necessarily designed to interact with others and there are no guidelines to say they must, which risks creating digital siloes and hampering digitalisation efforts in the long run.

Digital islands were a problem pre-pandemic, but as the drive for trade to digitalise has accelerated, so could this issue.

“The fragmentation of platforms that emerged before remains a concern. With digitisation being prioritised some of these may get more adoption and become more mature, but still remain fragmented. This digital island challenge that we have will probably get worse and would need addressing,” says Vinay Mendonca, managing director and global head of product, propositions and structuring, trade and receivables finance at HSBC.

He adds that while it is important to get digitisation initiatives off the ground, interoperability and standardisation issues urgently need to be addressed. “If they go too far ahead, and we haven’t solved the interoperability and standards issue, we are not going to solve the wider industry issue. Making sure we balance the two is going to be critical and some of the work being done by the different international organisations is going to be vital for us to make that happen.”

Earlier this year, the International Chamber of Commerce (ICC) took steps to develop trade standards to facilitate interoperability among the blockchain-based networks and technology platforms created in the past few years. In March, the Digital Trade Standards Initiative (DSI), an independent entity, scored seed funding from the Asian Development Bank (ADB) and the government of Singapore to begin its work.


Lack of infrastructure

The global digital economy was worth US$11.5tn, or 15.5% of the world’s GDP, in 2016, with this figure expected to rise to 25% in less than a decade, according to a study by telecomms giant Huawei and global forecaster Oxford Economics in 2017. However, large disparities remain between and within countries when it comes to the dispersion, affordability and quality of digital infrastructure.

While more than half of the world’s population now has access to the internet, the penetration rate in the poorest countries is estimated to be only 15%, or one in seven people.

One reason for this is that internet access through mobile or fixed broadband remains expensive in many emerging markets because of the lack of basic digital infrastructure.

Across Africa, less than one-third of the population has access to broadband connectivity, for example. While the number of broadband connections on the continent crossed the 400 million mark in 2018 – nearly 20 times 2010 levels – the regional average broadband penetration was only 25% in 2018, according to a report led by the World Bank last October. It suggests that achieving universal, affordable and good quality internet access by 2030 will require an investment of around US$100bn.

If those working in trade in emerging markets are unable to access the internet, and even if they are, at speeds which are insufficient to complete basic tasks, then systems will struggle to be digitalised and paper documents will continue to be used in transactions for the foreseeable future.

“The reality is that it’s always going to come down to the lowest common denominator or the weakest link in the process and if the bill of lading, for example, needs to be in paper form, then the weak link is still going to be paper,” says Standard Chartered’s Vrontamitis.