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The end-to-end process of international trade—from issuing documents to shipping goods and completing payments—has been labyrinthine, often mired in paperwork and delays. Today, however, a digital revolution is steadily engulfing each facet of global commerce, promising to usher in a new era of efficiency. A new Lloyds Bank Trade Insights report, published on 8 October 2024, has offered a glimpse into the benefits available to trading businesses as a result of this process of digitalisation and modernisation.
Paper: Both time and resource intensive
Historically, the administrative burden of international trade has been staggering. Processing a single shipment could require up to 50 sheets of paper, exchanged between as many as 30 different stakeholders. With over 434 million tonnes of cargo passing through UK ports in 2023 and more than 85,500 cargo ships arriving, the scale of this paper-based system becomes clear—and so do its limitations.
The introduction of the Electronic Trade Documents Act (ETDA) in September 2023, granting digital trade documents the same legal status as their physical counterparts, paved the way for a seismic shift in how the UK conducts global trade.
“The ETDA is a game-changer,” says Rita King, Managing Director and Head of Institutional Trade Sales at Lloyds Bank. “It’s not just about leveraging new technology; it’s about fostering collaboration across the industry to make the entire process faster and smoother for businesses.”
Digital trade documents can cut processing times from weeks to mere seconds, which would simultaneously reduce carbon emissions by at least 10%. The UK government estimates that this shift could create £1.14 billion in net benefits over a decade and unlock efficiency savings worth £224 billion.
The tides are turning on digital trade documents
The industry’s response to the ETDA has been swift and enthusiastic in Britain. For instance, Lloyds Bank completed the first transaction under the new law by issuing a digital promissory note for Matalan Retail Ltd. This electronic document arrived two days earlier than its paper equivalent would have.
Building on this success, Lloyds Bank has since digitalised the three key negotiable documents covered by the ETDA: the Promissory Note, the Bill of Exchange, and the Bill of Lading. In one case, this reduced a transaction’s completion time from 15 days to just over one.
While trade documentation undergoes its digital metamorphosis, the payments ecosystem is experiencing its own modernisation.
A key development in this arena is the global migration to ISO 20022, a new standard for payments data.
“ISO 20022 enables participants to encode a payment with consistent, rich, and structured data,” explained a spokesperson from Lloyds Bank. “This helps improve clarity and interoperability, removing bottlenecks and friction between payment systems when making an international payment.”
Messaging capabilities also allow users to include specific information such as purchase orders, invoice numbers, and trade regulations. This improves the capacity for straight-through processing and reduces the need for manual intervention, ultimately enhancing operational resilience and Know Your Customer (KYC) requirements.
Recognising that, despite improvements, cross-border payments still lag behind their domestic counterparts in terms of speed and cost, the G20 made enhancing cross-border payments a priority in 2020.
The Committee on Payments and Market Infrastructures (CPMI) identified three main areas for improvement that directly affect trading businesses:
- Cost: Cross-border payment fees currently average 1.5% for corporates and 6.3% for remittances. Reducing these costs is crucial for businesses operating on tight margins.
- Transparency: Swift’s global payment innovation (gpi) was introduced in 2018, significantly improving tracking and tracing global cross-border payments. This enhanced visibility helps businesses with cash flow forecasting and management.
- Speed: Swift gpi has also accelerated payment processing. Nearly 40% of gpi payments are credited to end beneficiaries within 5 minutes, 50% within 30 minutes, and almost 100% within 24 hours.
Blockchain technology is also poised to revolutionise the broader payments landscape. Though traditionally associated with cryptocurrencies, and despite challenges in connecting blockchain-recorded transactions with traditional systems and ensuring regulatory compliance, major banks are making significant strides.
Lloyds Bank, Santander, and UBS, recently achieved a world first: a payment on a fully-regulated, distributed ledger technology-based wholesale payment system. This Sterling Fnality Payment system, underpinned by a Bank of England Omnibus Account, enables near-instant, round-the-clock transfers using pre-funded balances.
Interoperability is essential
The journey towards fully digitalised and efficient international trade, while accelerating, still has some way to go. The FIT Alliance, an association of key shipping industry bodies alongside Swift and the International Chamber of Commerce (ICC), aims to ensure that 50% of all Bills of Lading are digital by 2028, and 100% by 2030. The ICC has set an even more ambitious target of digitalising 60-80% of all trade by 2026.
“These goals can only be achieved with full industry activation and support,” King emphasised. “Collaboration within the financial ecosystem is crucial to boost interoperability and improve the trading process for businesses.”
Innovation continues to play a pivotal role in this transformation. From leveraging blockchain technology for secure document transfers to exploring new ways of increasing the speed and transparency of cross-border payments, the industry is constantly pushing boundaries.
Lloyds Bank, for instance, completed the UK’s first digital promissory note transaction using blockchain technology in 2022. More recently, it became the first UK bank to join the WaveBL electronic trade documentation platform, completing its first electronic Bill of Lading transaction.
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The innumerable benefits of digitalisation on international trade—streamlining processes, reducing costs, increasing transparency, and bringing environmental benefits—need not be reiterated. What’s important now is keeping tabs on how far along financial institutions and corporate bodies are, in the timeline towards full digitalisation.
“The digitalisation of trade documentation has achieved what was previously impossible,” summarised Gwynne Master, Managing Director and Head of Trade and Working Capital at Lloyds Bank.
“Processes that used to take up to 30 days can now be completed in just two hours – making the issuance of trade documents faster and easier than ever. Coupled with innovation in the payments landscape, it’s clear we’re at a turning point for international transactions.”
Download the report here.
