As the trade finance industry grows increasingly accustomed to digitisation, banks and corporates are reconsidering their priorities when it comes to the strategies underlying the adoption of new technology. Leading the discussion is Contour, a trade finance network whose aim is to streamline complex trade finance processes and enable paperless trade.

Since its launch in 2020, Contour has signed on over 130 members. Connecting corporates to financial institutions and trading partners on one decentralised network, the bank-owned blockchain company’s first goal has been to digitise the letter of credit process.

In this Industry Perspective, Joshua Kroeker, chief product officer at Contour, explains how trade finance digitisation is evolving and what the industry should be concentrating on in order to achieve sustainable growth.


GTR: Trade finance digitisation is a goal for much of the industry, but is this the end game?

Kroeker: Several years ago, everyone was excited about new technology such as blockchain, but perhaps we didn’t think enough about why it was exciting or the bigger picture about what we wanted to achieve. Now we’re starting to ask why we’re using technology – what is our end goal? Are we just taking existing paper-based trades and putting them onto a digital system? To what end?

To help answer this question, we broke it down into three categories of possible goals. The first is cost reduction, which is the basic business case for digitisation as technology has been proven to remove time and friction from transactions, as well as manual processes. The second category is to improve compliance and risk procedures. Technology can enable greater transparency and visibility to achieve compliance with a new regulation or an ESG standard for example, or for reducing fraud risk. We’re seeing a lot of activity happen in that space, especially as ESG mandates become clearer.

The third category is growth in the trade finance industry. This is about changing who is involved in the finance of trade, reducing barriers to entry, and becoming more inclusive. Growth should not be concentrated amongst only the very biggest companies and economies, but among smaller businesses in emerging markets as well.

Any one solution can of course help drive partial improvements across all three goals, but it is helpful to remain focused, and to have a single primary goal.


GTR: How is Contour thinking about digitisation in 2023?

Kroeker: The goal that we want to focus on is growth in trade finance, and in particular, sustainable growth. We want to make sure the cost to serve of trade finance is low enough that banks can support every corporate that qualifies – from the multinational companies to the small and medium-sized enterprises (SMEs). It is important to focus on supporting emerging markets and SMEs, because that’s where a lot of the growth is going to come from.

We know that if we can lower the cost to serve for letters of credit, and tailor our commercial approach to long-term network building, emerging markets and SMEs will benefit the most. The next step is creating a community of banks who want to grow their business in these areas.

A community of banks can also work together to make trade with emerging markets easier through risk distribution, an area we are starting to explore at Contour either directly or through partnerships. When one bank is not able to take the risk of an emerging market bank, another bank or non-bank financial institution might.

The letter of credit is an important product for us, as it provides confidence and risk mitigation where one of the corporates may not have a global reputation, is in a new relationship, or if the transaction involves country risk. This is why Contour is so focused on making this product simpler, more intuitive, and more widely available. We will eventually expand to other areas of trade finance such as guarantees, standby letters of credit, and more – but our focus for now is on improving the overall experience for the letter of credit.


GTR: How will these priorities help the industry focus on delivering sustainable growth? 

Kroeker: Everybody is looking for the silver bullet: the one solution that’s going to solve across all digitisation goals. But trade and trade finance are very complex, so what we need to do is look at the problem holistically and ask what combination of solutions and processes is needed to achieve sustainable growth, and how they can be integrated into existing systems and processes over time. If banks and corporates are not ready to join until everything’s perfect, we will constantly be stuck in this cycle where there are small digital platforms but none at a global level, which is what is needed. The truth of any trade finance solution is that it needs scale before it can start to deliver on these value propositions both individually and collectively.


GTR: There are now 20 banks on Contour’s trade finance network. What are the best practices for banks when they’re thinking about digitisation?

Kroeker: Banks should think about what their goals are, whether letters of credit are important to them, and if they’re looking to grow their business through enhancing their proposition. We can help them do that, and we are working with our banks now – and their existing trade finance software platforms – to understand how our solution can enhance their proposition at scale rather than just with a few corporate clients. It’s a mutual journey that we must go on together.


GTR: Once a bank is on board, what are the next steps to ensure they’re maximising the benefits of being on Contour’s network?

Kroeker: Once they’re a member of Contour, a bank will have to think about how they activate their membership with their corporate clients, otherwise it’s like joining a gym and never going – it’s not going to do anything for you. The first thing to do is think about how you’re going to offer this new digital proposition to corporate clients. One option we are exploring is for banks to onboard their customers directly to Contour without their clients needing to separately contract with Contour. This could be a real game changer for us as it makes the onboarding process much simpler. The second option is to use more traditional referrals, email invites and other more passive engagement solutions. Our preference is of course the former, as corporates are used to going directly to their bank for a letter of credit solution, and our offering can be embedded directly into existing channels which makes for a much simpler transition.

The second step we ask our banks to take is to think about how corporate clients will interact with a new solution like Contour. Will the bank integrate the offering into an existing corporate channel, or set it up as a completely standalone solution? We’re happy to support either of these options, but in order to set themselves up for success, we recommend that banks at least plan how a new solution can be integrated, whether through APIs or even a simple single-sign-on.

The third step is setting goals. Setting internal KPIs helps maintain focus within an organisation over a longer period, long past the celebration of the first transaction or joining announcement, which can deliver lasting improvements to their business.


GTR: Banks use a multitude of digital tools and solutions. How important is interoperability and how does Contour’s solution fit in?

Kroeker: Interoperability is imperative, but I think it has to be defined correctly. I would define it simply as data flow between multiple solutions in a seamless and efficient way. A lot of banks and corporates like to say that interoperability is the tech platform’s problem, but in my view, it’s actually the initial responsibility of the individual bank or corporate to drive interoperability. That is the first step.

For example, banks might want to join an electronic bill of lading platform, a trade finance network like Contour and another platform for reducing fraud risk. If they build integrations to all three of those systems and the data goes into their internal systems from the external system and vice versa then they have achieved the first level of interoperability – between internal and external systems. To this end, we are seeing more and more banks investing in ‘middle layers’ of technology that is helping them reduce costs and better connect their internal systems to external parties. This has enabled significant improvements in their ability to integrate and achieve the process improvements they seek, but it does take time and investment.

The next phase of interoperability can only work after step one, and this is between multiple external participants themselves. The way I see this data flow is a transaction could flow from one external platform to an internal platform, and then some of the data back out to another external platform. This is true next-level interoperability that the industry needs, and the key to achieving this is common data standards and identity standards, like the legal entity identifier. By working together as a tech community, we should do everything we can to adopt common standards in data, process and identity and Contour puts this as a top priority. As banks and corporates progress to integrate to external systems – step one – and these external systems are all using common processes, data standards and identities, we can then finally achieve the goal of seamless and efficient data flow across the trade ecosystem. We can only begin to imagine the benefits that this can provide, but this is where we want to go.