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Digitisation in focus at Sibos

One unexpected benefit of SWIFT's Sibos conference being forced to go online this year is that the organisers have been able to extend the conference, putting on a new virtual day of the event every month following the main event in October.

Last week, the December programme rolled out. Of particular interest was a panel session on "A defining year for global trade", moderated by Louise Taylor-Digby, head of Trade Strategy at SWIFT.

Taking stock

In her introduction, Taylor-Digby noted that 2020 had been a truly unprecedented year for global trade. In late April, there were weeks where letter of credit (LC) volumes were down almost 50% week on week. However, since then there have been signs of a rebound across both value and volume. LC volume stands at around -15% year-on-year as of November. 

"Despite this drop in overall documentary trade, we've seen an increase of 28% in corporates digitising their documentary trade flows with their banks," Taylor-Digby noted. "We also launched a rapid response measure back in April, in recognition of the unprecedented challenges that corporates and banks faced in facilitating the movement of trade documentation, not least into lockdown jurisdictions. We rapidly launched a solution to enable SWIFT-connected corporates and banks to move those trade documents safely, securely and in seconds to over 200 countries for free." 

She also highlighted the collaborative efforts that SWIFT has undertaken this year, particularly in working with fintechs throughout the year to lend the cooperative's reach, scale and expertise as a standards authority to the development of API's, including those that can help tackle risk and control areas like duplicate invoice financing. During Sibos week in October, SWIFT also announced a strategic collaboration with the Singapore government developing a new industry standard for legal title transfer, crucially underpinned by legal harmonisation. 

"As a responsible innovator, we've been working with the United Nations to drive awareness and advocacy for the adoption of laws that enable electronic transferable records," added Taylor-Digby. "And it was fantastic to see the recent Regional Comprehensive Economic Partnership (RCEP) trade agreements, widely cited as the world's largest trade agreement, drive 15 countries towards that legal harmonisation that the industry so desperately needs."

Emerging markets leading the way

As the global economy has started to recover, emerging markets look to have actually recovered much faster, and in many ways significantly above expectations relative to earlier in the year.

"When people talk about global trade, they tend to focus on both developed and emerging economies," explained Eric Robertson, global head of Research at Standard Chartered Bank. "And when we look at it in aggregate, global trade is in fact lagging fairly significantly. Global export volumes remain well below those levels that existed pre-COVID. But if we look at emerging markets alone, we see that emerging market export volumes have actually already recovered their pre-COVID levels, and that has occurred in two quarters. If you go back to the global financial crisis, the recovery in emerging market trade took six or seven quarters." 

The speed of the recovery in emerging markets has a profound impact on both emerging market growth and global trade growth as a whole. 

"Two thirds of global growth comes from Asia, which is largely emerging markets," said Robertson. "What we've observed is that intra regional trade - trade between two emerging market economies - is actually the big driver of this recovery over the last three or four months. And it's also not just China, it's all of the countries of Asia and the Asia Pacific. This profound recovery in EM export volumes is going to be one of the key platforms of support for broader global recovery as we move into 2021."

Ensuring digitisation is permanent, not temporary

One measure that has helped global trade not get completely derailed by the pandemic is the temporary lifting in some jurisdictions of requirements for paper-based trade documentation. Digitising these documents has enabled trade to continue to function - but with COVID vaccines starting to roll out and a potential end to the pandemic in sight later next year, it is important that the industry doesn't simply revert back to inefficient paper-based manual processes. One step to support trade digitisation came in September 2020 from the International Chamber of Commerce (ICC) when it launched the Digital Standards Initiative.

"Our aim is to address the long standing barriers to widespread digitisation of cross-border trade processes," said John Denton, secretary general of the ICC. "One of the principles we've taken into COVID-19, and one of the principles that has really become much more vital for us during the context of dealing with COVID-19, is the importance of digitisation. People talk about 'build back better', but we say build back digital. Part of that is ensuring the systems that support digitisation and the digital economy are functioning."

One of the big issues in trade digitisation is the lack of interoperability between the different digital platforms at the moment, particularly in areas like trade finance. When it comes to the digitisation of documents to support trade finance, it appears that currently the opportunity outweighs the reality. 

"Currently, the digitisation of trade finance documents about less than 1% of total volume, so there's a huge opportunity before us," commented Denton. "What's holding it up is a lack of interoperability between the various systems. There are lots of good initiatives and innovations in the digital economy. There's lots of great stuff happening in digitalisation of documentation required, but there's too much confusion, lots of inefficiency, and it's frankly too expensive for many people to actually subscribe to all the different platforms that are emerging." 

Denton explained that he saw the ICC's role in this to not only create the standard for an e-bill of lading, but to enable the interoperability of the various platforms to make it more efficient and actually create an opportunity for greater uptake. 

"In terms of the standard, we are pushing very hard for the adoption of the United Nations Commission on International Trade Law (UNCITRAL) modern laws," Denton added. "We think it should not be beyond the capability of governments to actually pick up and enable application of those modern laws, because they do give the legal certainty to electronic documentation that supports the whole principle of the digitisation of trade." 

While a multitude of digitisation initiatives are underway, the panel made it clear that there is still a way to go before digital trade trade documentation is commonplace. 

"Despite all the efforts, it's fair to say that right now we still have the same issues, the same barriers, which are limiting the acceptance of digital documents in trade," said Marie-Laure Gastellu, global head of Trade Finance at Societe Generale. "There are still very strong legal barriers against adoption of electronic documents versus physical documents in a number of jurisdictions, and this has not been solved."

In spite that, the pandemic has brought into sharp focus for banks and corporates what is possible in terms of trade and supply chain management.

"Companies will be looking to organise their supply chain in a much simpler way," said Gastellu. "Simpler to manage and also simpler to reorganise in case something like COVID happens again. For banks, automated processes have allowed us to process the entirety of the transaction chain with everybody working from home. That's something which would we would never have imagined before, that we would be able in such a short timeframe to process everything with very limited issues. One area that has seen great progress is e-signatures, which are now widely accepted."

The role of cloud

Another session at the December edition of Sibos 2020 looked at the role the cloud is playing in digitisation. In her introduction to the panel discussion, Rachel Levi, global innovation lead at SWIFT noted that while the many benefits of cloud computing, such as agility, scalability, and reduced costs, are clear, for banks the journey to adopt cloud can be a tricky one.

"Many questions around how to seamlessly transition existing applications successfully to the cloud are still being answered," Levy noted. "We're seeing customers with accelerated competitive pressure, increasing customer demand and changing regulatory landscapes having a lot to think about when it comes to their cloud strategies."

Despite the challenges, banks are trying to embrace cloud technology for the efficiencies it offers both themselves and their clients.

"Cloud is the cornerstone of our technology strategy," said Natarajan Sriram, CIO Transaction Banking at Standard Chartered Bank. "We've adopted a cloud first approach which makes our vision for next generation financial services - such as virtual banking, next generation payments, open banking and banking as a service - a reality."

Sriram categorised the benefits of cloud in financial services into five areas:

  1. Client experience. The ability to offer reliable 'always on' service, with faster time to market and roll out capabilities of new services.
  2. Agility and innovation, which is quicker integration to support new business models with clients, partners and marketplaces, and handle seasonal volume spikes with on demand elastic scaling, to cater for business growth. 
  3. Risk mitigation, as service disruptions are minimised with increased availability and cross-site failover capabilities that comes with applications running on cloud, as well as enhanced cyber security. 
  4. Efficiency. That refers to high automation of IT services like in for provisioning software deployments, automated monitoring, self healing mechanisms, and so on. 
  5. Cost management. Cloud offers a reduced total cost of ownership with a pay as you go model that provides transparency and better control.

"Financial institutions, through their work with regulators all over the world, have paved the way for leveraging cloud for the upcoming evolution of payments driven by ISO 20022 migration," noted Esther Mendez, WW Banking and Payments Partner Development lead at Amazon Web Services. "The proliferation of instant payments is also driving a great deal of the change that we see in the industry."

There are many journeys to migrate solutions and workloads to the cloud, ranging from lift and shift implementations, complete refactorings, to the modernisation of applications. The message from this panel was that one size does not fit all, and every organisation and financial institution will be in a different phase in their journey. These services all democratise finance for everyone, but independently of where you are in the journey, the banks can invariably benefit from the cloud value proposition. 

"In our collaboration with SWIFT, we're starting with the lift and shift approach, ensuring compliance with SWIFT's customer security control framework, and integration with native services, such as auditing and monitoring, and queue management, to enable customers to move their existing environments," Mendez explained. "At the same time, we're collaborating with global financial institutions, to define the evolution of payments and infrastructure components to native cloud services."

Clearly there is a lot of work still to be done to ensure true digitisation of financial services, but it is heartening to hear about the amount that has already been achieved and the ongoing efforts to get to a truly digital future.

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