It has started to happen, for real.

(Picture credit to Nik / Unsplash)

Global Trade and Trade Finance digitalisation seems to be one of the biggest challenges in the financial services.  We all know, it is the only way forward, yet the inertia on the market also pushes back very hard.  And it is very understandable as the decades and, in some parts, even centuries old practices are deeply planted into thinking, processes and even to some of IT systems used in Trade Finance.

I have a long history of participating to Payments Domain standardisation and have been in the core of ISO 20022 financial services standard management and its market adaption.  And finally, the whole global bank-to-bank infrastructure and many other market infrastructures are now going to move into ISO 20022 standard use in year 2025.  It is a big victory for harmonisation and the biggest benefit is the whole domain will use a common global language of structured information in any payment initiation, execution and reporting. 

Around ten years ago me, some banking colleagues and large corporate customer representatives started to wonder, why cannot we do the same in Trade Finance as the Payments Domain was successfully proceeding.  In Trade Finance the market and challenge scope are larger and the complexity of stakeholders in various parts of the processes is similarly vast.  It is hard to find so big meeting room, even virtually, where every voice, need and requirement could be heard.  And we know, there are also players generating business with the status quo, advising and supporting the global traders in this existing challenging environment.

Five years ago we started a discussion forum called Standardised Trust.  We created a white paper, still very relevant, and after some kick-off activities, with a fully non-budget, voluntary work we started to create a semantic model, first for guarantees and now also for documentary credits.  We are now around 30 active members in this job and some 380 followers at our LinkedIn group.  We will create a semantic model, freely and openly available for any Trade Finance stakeholder to use in their own platform, system or process design to enable interoperability of structured and well understood data of trade finance related instruments. 

When we started the active work, 4-5 years ago, it was still very hazy and unsecure how the Trade Finance digitalisation will succeed or will it at all.  Luckily now, during the last couple of years, various early initiatives have moved to actual realisation and it seems, some of them will even fly.  International Chamber of Commerce initiated Digital (trade) Standards Initiative (ICC DSI) has been launched and the initiative speaks, supports and enables common standards and harmonisation use cases for Trade Finance stakeholders.  Many new digital platforms have been created to manage and execute new digital way of working, yet some of them even now noticed not to be viable and feasible thus being shut down.  The secret sauce of success for the rest is the interoperability.  How can the platforms and systems, easily speak with each other, without needing paper or human interaction?  In this respect we will need a common language and means to deliver structured information from stakeholder to another without a need to print it out to paper in any stage of the process.

Interoperability, the common language and standardisation, the syntax of the common language, are needing some support from legal framework and digital trust.  Digital trust is key component in any data and title transfer exchange.  We need to know, on very high reliability level, with whom we are dealing in global trade and which kind of products we are trading.  In this respect Global LEI Foundation has done remarkable job by introducing even verifiable LEI structure (vLEI) using Self-Sovereign Identity management principles.  In the legal framework, UNCITRAL’s Model Law of Electronic Transferable Records (MLETR) has gradually been now starting its adaptation globally.  The amount of countries done this is still very modest, but one of them is Singapore and the next will be UK followed by other G7 countries, which will be the final boost for the global adaptation. 

No one could have missed the year 2022 geopolitical turbulence.  High tension burst out as a war in Europe hiding attention even from the biggest existential crisis, global warming and loss of biodiversity, we are obviously living.  Together all issues are generating a high motivation to move into digital trade and Trade Finance.  We need to know, understand and track the information of goods and counterparties of a trade much better than we do on paper basis.  Common structured information language, digital trust, standards and updated rules of Trade Finance enabled by nationally, regionally and globally adapted legal framework is the only way forward.  Only with these solutions we will be able to start creating and executing a truly regenerative finance.  We need to make technology and digitalisation to serve sustainable business and world.

In year 2023 we will need to continue the impressive momentum boosted in last year.  I was supported by my employer (SEB) to learn and acquire an ICC Academy Certificate in Digital Trade Strategy (CDTS), which I graduated just after the year change, a week ago.  I’m very grateful for the CDTS-programme being able to collect the most prominent Trade Finance digtalisation primus motor set of people and initiatives to a comprehensive learning set available, of course, not on paper but on-line, even with the final and tough exam.  The key insight of the programme was: we have all the tools available already now to make global trade and its financing digital – now it is up to us and our ability to collaborate to take the needed steps and leap to make it as a practice.  Join the momentum, make your own learning and working path available for this common good.  Every single effort will be needed.