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While the COVID-19 pandemic had devastating impacts, it is difficult to deny that it was instrumental in exposing digital weaknesses around the world. 

Estimated reading time: 5 minutes

Businesses and industries that were unprepared for a quick transition to a digital economy were hit hard during the early months and subsequent years. 

Trade finance was one of these industries.

Trade Finance Global (TFG) spoke with Rishikesh Tinaikar, global head of corporates and Trade Go to Market at SWIFT, to further explore the pandemic recovery and how lockdowns are accelerating trade finance’s push toward digitalisation.

International trade crucial for pandemic recovery

It is clear that trade has a critical role to play in the overall pandemic recovery.

“Trade is central when you’re talking about global economic growth,” Tinaikar said.

“When you are dealing with goods, you’re dealing with money and economics. The better and faster that you trade, the faster you can grow, innovate, [and] improve productivity.”

However, the complexities of the global trade landscape, which includes myriad stakeholders and key players from disparate specialisations, may make it more difficult for practitioners to simply call on the industry in its present state to facilitate the recovery. 

“In my view, rather than asking the question of how trade can aid in economic growth and the pandemic recovery, our thoughts should be around how global trade digitisation can help in that direction,” Tinaikar added.

This is not a new conversation topic for the trade finance space but is one that experienced a mindset shift in light of COVID-19. 

Tinaikar said, “The industry has been talking about trade digitisation with respect to the operating environment for a long time.

“But with the pandemic, suddenly it became less about the operating environment and more about digitisation as a matter of business continuity and risk management.”

Trade finance digitalisation

There are many reasons why trade digitalisation will boost efficiency for trade finance and subsequently aid in the pandemic recovery.

“Digitisation has the potential to reduce processing time, costs, risks, and friction, while also increasing transparency,” Tinaikar said.

“Hand in hand with that is richer data, which gives great insight into supply chains and how trade and finance are happening around the world. With this insight, country-central banks will have more visibility into how economic growth is happening.”

This added insight and visibility allows governments to make data-driven decisions on how to change policies to promote both trade and recovery.

SWIFT’s role in promoting trade digitalisation

SWIFT had a key hand to play in keeping finances flowing during the early pandemic uncertainty.

“SWIFT actually facilitated over $2 trillion in documentary trade financing in 2020, which was at the height of the pandemic,” Tinaikar said.

“What we saw was that the use of messaging standards like the MT 799 was relatively less affected, suggesting that SWIFT did serve as a broader means of secure communication even during the pandemic.”

The bank-to-corporate messaging channel, MT 798, also saw significant growth through 2020, a further sign that the pandemic was inducing a strong shift to digital.

SWIFT did not just rely on pre-established operations to promote digitalisation; the organisation also rapidly adapted and sought unfamiliar ways to help businesses that suddenly found themselves thrust into a remote world without the appropriate toolkit to deal with the challenges.

“We published a guideline on how our network could help facilitate the digital transmission of trade documents,” Tinaikar said.

“That was a significant step towards the industry commercialisation of what we now call the eUCP rules under the International Chamber of Commerce (ICC).”

While all of these steps have helped, there are still some troublesome challenges that remain for trade digitalisation.

Three stubborn challenges

The three biggest hurdles standing in the way of trade finance digitalisation are a lack of standardisation, unfriendly regulations, and industry fragmentation. 

Standardisation

The largest challenge according to some experts is a widespread lack of standardisation.

“Trade is an extremely complex ecosystem covering multiple actors, multiple ecosystems, and multiple platforms,” Tinaikar said.

“This means that the operating standards that get developed only set out to solve point problems in those individual domains.”

Over time, if this development continues to happen in silos, it leads to the proliferation of the digital island problem, which severely limits the amount of rich data that practitioners can collect. 

Regulation

Many of the regulatory challenges facing trade digitalisation stem from legal definitions, concepts, and rights that vastly pre-date the advent of digital technology. 

“When you then talk about digitisation, the question is if those rights still apply when a document is an electronic form,” Tinaikar said.

For most jurisdictions around the world right now, the answer to this is a resounding no. However, there has been considerable movement on this front over the past several months, and many experts anticipate that lawmakers will enact revisions in the coming years. 

Given the nature of international trade, involving multiple jurisdictions at a time, the full benefits may not come until even further down the road.

Fragmentation

“The fragmentation could be around technology––with some dabbling in blockchain and others using artificial intelligence,” Tinaikar said.

“Some fragmentation could be in terms of who is operating the technology––will it be governments, private enterprises, or some other type of organisation? But at the end of the day, these little digital islands will create different processes and different types of data.”