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The decade of Trade Finance digitalisation

Photo by Tim Evans on Unsplash

The new decade of 2020’s has just started.  The last years of the previous decade were astonishing in terms of new technical opportunities emerging.  Also the Financial Services industry started to adapt into the new technology both from regulative and strategic grounds enabling better Financial Service process support for other industries’ digital transformation. 

When the other industries build up their new business models based on the fourth industrial revolution (4IR) where everything will be and is connected, the management of Supply Chains and financing of Global Trade will need to be transformed as well.  Existing, tedious and paper-based processes will not be anymore usable.  Global Trade will be faster, electronic, platform-based, more inclusive and therefore even more complex.  The counter-parties still need to gain better and more automated trust to each other as the challenges exposed by fraud will expand as well thanks to digitalisation. 

Many challenges at new, digital Supply Chain and Global Trade processes are said to be solved with the good properties of Distributed Ledger Technologies (DLT) and Blockchains.  This tech still has a lot of challenges not being the Holy Grail as the one and only solution.  We still have seen that many Trade Finance area bottlenecks can be helped and dismantled with DLT yet it is not one-size fits all.  But when we look with more holistic view on the new tech opportunities, we will find out that tracking with Global Positioning System, Internet of Things, Cloud, Indisputable Digital Identities (persons, corporations, personas and things), Robotics, Artificial Intelligence / Machine Learning, Robotics and Application Programming Interface based integration offer together capability to start creating end-to-end business processes for the Trade and Supply Chain Finance on requirements of the fourth industrial revolution.

Digitally connected and validated counter-parties will be able to trust each other.  Connectivity and integration of various Supply Chain and Global Trade platforms will need common language, semantics to make them interoperable.  This has been now realised also by one of the key stakeholders in Trade Finance,  the International Chamber of Commerce (ICC), creating a new operational Digital Standards Initiative (DSI), aiming to create this interoperability rule set starting on the 1H 2020 from Singapore.  Also ICC’s new Uniform Rules for Digital Trade (URDT) initiative will deliver and support common standardisation starting as well in 2020.

What will be then role of our Standardised Trust community.  In relatively short time (starting in spring 2019) our Guarantee semantics definition team has reached a solid basement to define usable semantics for bank and non-bank Guarantee application.  The basement enables continuation with faster pace on the other Guarantee life-cycle stages with innovative access to any internet based free resources on code lists and text templates.  This semantic model will be a basement for smoother integration of any technical and functional solution in the future.  And most of all, it will be freely available for any interested party to reuse. 

In year 2020 and further the Standardised Trust community will continue its well started and balanced collaboration of various stakeholder groups and, of course, will follow-up and align with other market initiatives of same basis and goals to avoid any double effort spending.  On the other hand, the Standardised Trust team will welcome any voluntary and passionate resource to join the group and contribute.  Let us make true Trade Finance digitalisation happen together!  Next possible opportunity to discuss and learn more is the ITFA event in Helsinki, Finland on the 27th of February, 2020.  See you there!

A Double Invitation to Act

Dear Standardised Trust community followers and all others interested of Trade Finance digital transformation. It is now time to show some concrete results of the Standardised Trust community active members’ work done for some months collectively.

We decided to strive into the semantic model creation for the bank guarantees. A model that can be used by any vendor, customer, standards body, regulator etc. for defining an interoperable business and data model. We believe the new, digital world of Trade Finance not to be based on one single monolithic platform or system and therefore a common language is needed to make data and documents based on that semantically solid data available easily for any system or process needing it.

We have reached now a level in our model where the basic model is functional and enables further standardisation and harmonisation of any bank guarantee case. The model is based on ISO 20022 but has been already expanded to embrace possibility to use standard text templates, market practice rules and detailed coding instead of vast areas of free text. Please, also note that the model at this moment applies only the application of the bank guarantee, and the other steps’ semantic model in the guarantee life-cycle will be designed and defined later. These steps will include issuance, amendments and the claim.

You can download the first simple use case (rental guarantee based on rental agreement) and the generic semantic model for your review. And here comes the two invitations:

  1. feel free to comment and amend the semantic model with your point-of-views you see it is missing or needing changes
  2. come along to Standardised Trust community by informing your interest to harri.rantanen(at) as we are welcoming all volunteers to contribute to our common work,

You can easily see us being in the very beginning of the journey, but there is a definite need for this type of semantic model design. We hope being able to offer this crucial building block for others to develop Trade Finance more digital and easier to use for all needing stakeholders globally.

Photo by Matthew Guay on Unsplash  

It all starts from the beginning

The Standardised Trust community aims to create a common semantics for Trade Finance to enable its interoperability and standardisation irrespective of any type of implementations or technology behind the implementations.  This common goal was defined about two years ago in the community White Paper, still very valid nowadays.  It took some time to expand the group both in amount of active members and geographies.  Also a structure of governance was created for this voluntary and no strings attached team, consisting of Trade Finance, Emerging Tech and digital transformation experts.  We originate from various international organisations and are committed to help the multitude of Trade Finance stakeholder groups to boost a simpler and more digital future for Trade Finance.

Now the very first concrete steps have been taken.  Community’s working groups #1 and #2 (End-To-End business processes and standards & semantics working groups) started to collaborate to make a draft semantic model for the bank guarantees.  It was an easy decision to start with this narrower scope Trade Finance instrument family instead of currently complex Letter of Credit structures.  The base model is coming from ISO 20022 Trade Domain business and data model.  We made a preliminary analysis of existing standards and concluded that year 2013 created ISO 20022 model for Guarantees and Stand-By Letter of Credits fits best for the purpose.  It is already somewhat outdated and due to lacking true market implementations it is not proven in practice hence not have had any change request to updated.  Still it beats well in structures the existing (even upcoming) MT798/MT76x message set.

We took very practical approach and started to go through the ISO 20022 tsin.005, UndertakingApplicationV01 message and discussed it through in a full day physical meeting.  We decided after this first evaluation that it has nice basement to continue.  Now we have taken practical and simple use cases and start testing the challenged semantic model with practical implications.  The very first use case is a Finnish rental guarantee that was already mapped to the semantic model.  We will continue the work still before summer holidays and hope that we will have good enough model to expand for more complex use cases after summer holidays. 

As we work fully openly, the draft working document material can be accessed and updated by the active members whenever wanted via cloud based document storage (OneDrive) and then to invite more active members to join the work, we release also some documents here at the home page.  We of course hope that we will more active members from our LinkedIn group followers and also outside that group from any interested volunteer that has a passion to make this financial services business area available for digital transformation.

Avoid FOMO (Fear Of Missing Out) and join us.  We will need your contribution! The Standardised Trust Community