It is a truth universally acknowledged that Covid-19 has been the biggest catalyst for digitalisation that global trade has ever seen. The surge of innovation that has come about as a result means that there are now digital solutions to almost every conceivable problem within global trade and supply chains. However, the hallowed end state of “critical mass”, whereby all participants along the chain are connected to each other and can enjoy paperless end-to-end processes, remains as far away as it has ever been – if not further.
“The pandemic has achieved more for digitisation in the last 12 or 18 months than we collectively as an industry have achieved in the last few years,” Sam Mathew, global head of flow and financial institutions trade at Standard Chartered, tells GTR. “But that net effect of the flight to digital has created a lot more digital islands, with limited focus on how to navigate between them.”
The reasons for the proliferation of digital islands as opposed to a single, global system are complex and manifold, but can be boiled down neatly to two main issues: legislation and standardisation.
On the legislation front, it remains the case that many digital trade tools are not legally valid in most jurisdictions, which hampers the scalability of many solutions.
“It’s important to note that while progress is being made, we still encounter legal frameworks that don’t consistently recognise electronic documents,” Louise Taylor-Digby, head of trade strategy at Swift, tells GTR. “Fundamentally, if businesses and banks are wrestling with a legal framework that doesn’t recognise an electronic document, it could mean that innovative solutions are not being implemented at scale.”
To fix this, numerous international bodies including the International Chamber of Commerce (ICC) have called publicly for governments to adopt the United Nations Commission on International Trade Law’s (UNCITRAL’s) Model Law on Electronic Transfer Records (MLETR), which will enable the legal use of electronic transferable documents, including bills of lading, bills of exchange, promissory notes and warehouse receipts, both domestically and across borders.
A recent commitment made by G7 digital and technology ministers to do just that, which comes after other economies such as Singapore and Bahrain adopted the law, represents an encouraging development, but doesn’t quite take the industry all the way to where it needs to be.
“Even if the legal aspects become a lot more digital friendly, you still need a common language and a common handshake for data and title to pass between these various ecosystems,” says Standard Chartered’s Mathew. “If you look at how Swift came into being, pre-1973, banks used to settle by sending telexes to each other. It would take weeks to clear a payment. Banks then came together and said that they needed a common language and a set of rules that all of us will abide by. When the banks came together and created something, there was method to the madness. That is one way of approaching it.”
This common language comes from standardisation, and in this regard, the industry has an embarrassment of riches to select from. From the Digital Container Shipping Association’s (DCSA) recently published data and process standards for the electronic bill of lading (eBL) to the Oasis Universal Business Language (UBL), which lays out standard formats for business documents from invoices to purchase orders, packing lists and beyond, and the work being carried out by the ICC’s trade finance digitalisation working group on developing a catalogue of trade finance APIs, there now exist consensus-driven, agreed-upon ways for trade and trade finance data to be structured in such a way that anyone can consume it. However, adoption of these set ways of doing things remains low.
“Some of the conversations we have been having, initially with some tech providers, are around what if we all agreed to use a common stack? What if we agreed to standardise our data?” says Jesse Chenard, CEO of MonetaGo, a fintech firm that provides duplicate invoice checking technology. “I don’t care if you want to compete with us or sell a similar solution, but let’s make sure that the messages we are sending to and from our systems are the same. MonetaGo can’t solve duplicate invoice financing on its own. We can technically, but from a buy in perspective, from a political perspective, from a scale perspective, we know that in order to be successful we have to open the systems up so that they can talk to each other.”
Having everyone agree on what form fields make up, say, an eBL, or what format data is delivered in, is one thing. But while this would go some way towards solving the communication problems between the ever-increasing archipelago of digital islands that have sprung up – in that they would at least all be speaking the same language – it still doesn’t solve for interoperability.
Building the rails
Platforms that make use of new technology, such as blockchain, often cannot connect to one another, or integrate with banks’ existing systems, and there are obvious limitations to the number of digital islands participants can practically join given the effort and investment required.
“We need the rails, like Swift in the past innovation. We need to come up with something that becomes a global interoperable exchange for digital assets, whether it is title, whether it is invoices,” says Mathew. “Within the digital islands today you can prove that these assets are unique and singular. But the minute you start crossing islands, we don’t have a common industry solution for that.”
For its part, Swift is working to enable solution providers to leverage its global reach and connectivity to try and reach scale.
Last year, the payments network unveiled a dramatic overhaul of its infrastructure, expanding its focus beyond financial messaging into end-to-end transaction management services using APIs and cloud technology.
“Our partnership strategy has allowed us to open up our API platform and collaborate with third parties,” says Taylor-Digby. “This gives Swift greater flexibility and means that the community get the benefits of standardised data, a common identity and security. Our partnership approach is also a catalyst for innovation on the Swift platform.”
“We are watching closely a number of promising innovations, and we are thinking about how we lend our assets and capabilities to frictionless trade in collaboration with partners, to build on our API platform,” she adds.
Meanwhile, the ICC, through the TradeTrust initiative – a multilateral, open legal and technical framework that enables interoperability across different trade platforms and formats for the exchange of digital trade documents on a public blockchain – is also working to enable the broadest possible adoption of digital technologies around the world. In addition, its Digital Standards Initiative (DSI) is developing open trade standards to facilitate interoperability among the various blockchain-based networks and technology platforms that have surfaced in the trade space over the past few years.
However, not all solution providers are thinking on a global scale when they develop technology for trade, and herein lies the issue, says MonetaGo’s Chenard.
“I think because it’s such a big problem, people tend to say, okay, I’m not going to solve the world’s problems, I’m going to solve mine right now. And that brings myopia and tunnel vision,” he says. “Some people are a little bit anxious or impatient and there are these pressures around just putting something out. And that is admirable and you do have to start somewhere, but from our perspective, this is a global problem and so if you don’t think about it globally, it is going to lead to issues down the road. It is not a winner-takes-all situation. We are all right. We just need to figure out how to get everyone together.”
For the digitalisation of trade to finally come to pass, more collaboration will be key. Unless participants adopt standards and start looking at the bigger picture when designing, developing and implementing solutions, the huge boost to digitalisation that was brought about by the pandemic runs the risk of becoming a wasted opportunity.