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Driving digitisation in trade finance

In SWIFT's latest paper, 'Digitising trade - now or never', the financial cooperative has used the data that flows through its network and the voice of its community to explore how efforts to digitise trade could reduce friction in global commerce and translate into economic growth.

According to SWIFT Watch, documentary trade finance had declined by as much as 49% week-on-week by late April 2020. It took the rest of the year for volumes to rebound, eventually ending the year down 11%.

Despite the overall drop in global trade, usage of SWIFT’s Digital Trade Channel solution increased by 72.4% in 2020, illustrating the appetite among corporates for digitisation. In 2020, SWIFT went on to process over US$2 trillion in documentary trade.

What is required for effective trade digitisation?

While technology has the potential to reduce processing times, costs and risks, it is not enough on its own. The paper identifies three key elements that are required for effective trade digitisation in an ecosystem that is characterised by a myriad of actors, technologies, standards, rules, regulations and legal jurisdictions.

Technology, legal harmonisation, standardisation and interoperability all play a crucial role in ensuring connectivity between both physical and financial supply chains, and enabling digitisation efforts to scale and thrive

“The pandemic has underlined the need to accelerate the digitisation of trade," said Louise Taylor-Digby, head of Trade Strategy at SWIFT. "We will support these efforts by expanding our capabilities beyond messaging and documentary trade, while building on our API capabilities, our partner strategy and our role as a standards authority. We are working towards a future ecosystem, one that offers the community access to both proprietary and third-party trade services via the SWIFT platform while leaning on our identity, security and standards protocols. This is backed by our ability to reach over 11,000 institutions and the 4 billion customer accounts they serve. We invite the community to join us on this exciting journey."

Making trade more efficient

Not only is the SWIFT platform designed to address fragmentation created by digital islands in the trade ecosystem, its existing capabilities to move trade documents more efficiently should help the community tackle the complexities of transferable records amid legal changes. SWIFT is also working with its partners to develop a catalogue of trade-based APIs to tackle frictions arising from different standards and specifications.

Crucially, digitisation of trade provides richer data, which offers the potential for greater insights into supply chains and a more transparent trade finance system. In turn, this will promote financial inclusion by providing better trade finance access to small and medium enterprises.

“We are not at the beginning of the trade digitisation journey, but are probably in the middle of it," said Oswald Kuyler, managing director, ICC Digital Standards Initiative at the International Chamber of Commerce. I think the industry is around five to ten years from having it solved. By focusing on three elements – legislation, standardisation and technology, we will be able to make the transition in a sustainable way."

Tech companies awarded trade finance compatibility labels

A major change to trade finance messaging is coming up in November as part of the SWIFT Release 2021. This year's release will support the moving away from unstructured messages to more complex and structured message types that allow for increased automation and straight-through processing. The SWIFT Release 2021 upgrades the functionality and format of messages for Guarantees and Standby Letters of Credit, building on the updates to Documentary Credit messages completed as part of SWIFT Release 2018. 

Last month, CTMfile reported on how Commercial Banking Applications (CBA) had upgraded its software in order to allow its customers to prepare for the changes coming in SWIFT. In the past week, Finastra and Surecomp have been among those to announce that they have secured SWIFT 2021 certification for trade finance.

Finastra announced that it has secured the SWIFT Compatible Application label 2021 for Trade Finance. This proves that Fusion Trade Innovation, Finastra’s global trade and supply chain booking engine and processing solution, meets rigorous SWIFT industry standards. The solution is ready to support customers ahead of the SWIFT SR2021 go-live in November this year.

"SWIFT SR2021 completes the cycle of the most significant set of changes to the trade finance messaging interface in nearly 30 years, with the updated message structures and the introduction of new message types," commented Anastasia McAlpine, head of Product for Trade and Supply Chain Finance at Finastra. "We are delighted to have secured this SWIFT Compatible Application label as it demonstrates Fusion Trade Innovation’s strong capabilities to align with the extensive and complex SWIFT standards. It is also testament to the solution’s ability to support customers as the industry evolves."

Surecomp has also announced that it has successfully secured the 2021 SWIFT certification for its trade finance solutions to support the processing of bank guarantees and documentary collections between banks around the world.

With the imminent November deadline for companies making trade finance payments via SWIFT to use the latest update of its MT 798 financial messaging standard, Surecomp is now formally recognised as a globally accredited solution provider to enable SWIFT-ready compliance. With many of its customers already upgraded to the latest versions and ready in switch-off mode to go live, the 2021 SWIFT Compatible Application Trade Finance labels have been awarded to Surecomp’s back-office processing automation solutions DOKA-NG and IMEX and also to its corporate solution COR-TF.

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