As year-end approaches, BNP Paribas’ trade finance team looks back at some of the trends that have unfolded over the course of 2020, and how one key objective for the industry – the ability to engage in entirely paperless trade on a large scale – might come to fruition sooner than anticipated as a result of the bank’s own initiative.


At the beginning of 2020, economists were reasonably positive about the outlook for trade for the year ahead, the global economy showed signs of improvement, and trade finance banks were raring to go – their clients’ order books full. Since then, the outbreak of Covid-19 and the subsequent essential containment efforts by governments around the world have had a significant impact on the industry’s stakeholders.

But, while trade flows are down and forecasts are dismal, the same cannot be said for traditional trade finance, says Bruno Francois, BNP Paribas’ Deputy Global Head of Trade Finance, who reports that the bank’s guarantee business in particular has been resilient over the last few months, even showing signs of a slight uptick thanks to the legacy of its portfolio as well as success in origination, despite the current challenges.

Similarly, in terms of documentary credits, although volumes were initially down during the pandemic’s outbreak – in parallel with the drop of economic activity – these have crept back up again. “From what we can see today, 2020 will bring a decrease of this type of business compared to last year, given months of economic distortion. But we see signs of recovery as documentary business is viewed as a solid risk mitigant, which is what customers are looking for when the environment is more uncertain,” he says. Documentary credits were further compounded by their reliance on paper, the cross-border movement of which ground to a halt in all but a few countries as a result of lockdowns, forcing stakeholders to find alternatives, such as electronic signatures, to continue to operate.

With regards to supply chain finance, the Covid crisis has led to many large buying companies – bolstered by liquidity from financiers and governments – stepping in to support their supply chains, including smaller suppliers, who have been hard hit by the effects of the pandemic. Supply chain finance programmes of all kinds have been a source of critical working capital and a means of improving the stability of players across the entire ecosystem. It has meant that other trends mooted over the last few months, such as nearshoring, have yet to play out in a material way. “The first priority for companies has been to stabilise their supply chains, and not necessarily concern suppliers with talk about moving production elsewhere. It may happen, but it will be gradual,” says Francois.

Two of the biggest pandemic-related talking points throughout the course of the year have been sustainability and digitalisation, both of which have become integral to the bank’s trade finance discussions with its clients.


Taking matters into one’s own hands

The digitalisation of trade has been one of the industry’s top concerns for a number of years, with efforts being fast-tracked by the Covid-19 crisis. Although there are a number of well-known industry-wide digitalisation projects in the pipeline, all in various stages of commercial production, there are tech-agnostic, practical steps that banks can take today to engage in entirely paperless trade, using what is already available to them. It is this approach of making use of existing frameworks – in tandem with new, more radical solutions – that BNP Paribas is advocating as it rolls out its post-Covid digitalisation plans.

“The use of paper in the trade continues to be a pain point, but there may be ways to do paperless trade, such as paperless letters of credit (LCs), using what we have and without having to invest too much,” says Alain Verschueren, Head of Innovation & DLT at BNP Paribas’ Trade Finance Competence Centre, who provides an overview of what the bank is doing to make paperless trade a reality today.


Q: What is the bank’s approach to advancing the move to paperless trade in the immediate future?

Verschueren: We have been looking at what we can do in the short term while we wait for all of the various platforms, many of which make use of new technologies, to be launched into production and reach scale.

There are, of course, pre-existing technologies, which everyone can use affordably. So we asked ourselves, what prevents us today in some situations to use an LC in such a way that all documents are transmitted in electronic format? That was the starting point: questioning whether or not it can be done, and, if so, in which circumstances.

There are many factors to consider. For example, as we know, the use of LCs is governed by the ICC UCP 600 rules, which allow parties to use electronic documents or copies if they agree to do so. One pre-condition is that the LCs should remain relatively simple, limiting the documentary requirements to only what is necessary. This is also the recommendation of the ICC, regardless of whether or not you use paper documents. However, contrary to this, there are often many superfluous pieces of paper transiting in documentary credits, which take time to be reviewed and which don’t offer any real added value. That’s an important first step of moving towards paperless trade: the continuing education of both banks and corporates about the need for simplification of documents throughout the process.

And, if all parties agree to it, it is not necessary to have original paper documentation transported via a courier, for example.

Of course, if it were that simple it would have been done a long time ago. There are several constraints. By far the biggest struggle with going entirely paperless is with the negotiable bill of lading. The electronic bill of lading has gone some way to addressing this, but it is not recognised in most of the world’s jurisdictions and will require changes in legislation. While industry bodies are lobbying for that, progress will be slow, and it remains a sticking point because the vast majority of trade takes place via shipment and requires an ocean bill of lading.

However, there are other modes of transportation, such as air, railway and road. And, in some cases, maritime transportation can be used without parties asking for a negotiable bill of lading.

In all of these situations you could conceivably work entirely paperless: there’s nothing stopping you from doing it, or at least trying. It just requires the will and acceptance by all the parties to do so.

The first thing we can do then is to work on going paperless in these scenarios where there are the least hurdles. BNP Paribas is doing tests around this, as are other banks, using technologies we already have and looking at what can be done immediately. Clearly this was a trend that started during Covid, but not on a large scale.


Q: How are you approaching this from a technology point of view?

Verschueren: The choice of technology will differ from bank to bank. For example, sending an email with a PDF attachment is something that can be done by anyone, and there are electronic signature tools readily available, but their use will hinge on whether or not individual banks and customers think it is safe.

Also, some countries may have their own regulations and requirements for what can be accepted technology-wise. But technically, yes, there are ways to do it today, and you could incorporate additional safeguarding through two-way authentication or cryptography. These technologies exist. Banks and corporates will need to do their own assessments of what is acceptable from a security point of view and agree to use the same solution for a transaction.

Many digitalisation initiatives today are taken from the technological point of view: some are disruptive, such as the blockchain-based platforms, others are less so, such as SWIFTNet FileAct – but even for that, you still need Swift, and you still need FileAct.

What we propose is to add another approach, starting from what we think is feasible in some use cases, using existing, entry-level technology and within the current legislative context and constraints.


Q: How does this approach fit in with the bank’s strategy to tackle innovation in the trade finance space and its involvement in the development of more disruptive projects?

Verschueren: We want to be able to move forward in a practical way without having to wait for, or be dependent on, new legislation or the rolling out of new platforms, some of which are more mature than others. But we will continue to work in parallel on our more disruptive initiatives: it’s not like the one must replace the other. BNP Paribas has a well-established legacy around driving both disruptive as well as incremental innovation.

Working on practical short-term initiatives with existing technology should help prepare the field for solutions and platforms based on newer technologies by encouraging clients and their counterparties – many of whom are in the habit of using paper – to work in a paperless way.


Q: Can trade finance ever be truly paperless?

Verschueren: If we’re talking about documentary trade, then the short answer is probably no. I am afraid there will always be a country, customs official or company somewhere in the world that will request paper. That’s also the big advantage of the product: that it is accepted everywhere and can be done with or without paper. We should never forget that.

But in terms of the use cases we’re aiming for – whatever percentage of global trade that accounts for – we believe that yes, it can. Likewise, we believe that the new platforms and e-presentation solutions will continue to develop and also help decrease the use of paper.