DLT for Trade: Ever closer to a digital globe

Technology will disrupt trade finance, just as it has disrupted other intermediary businesses and there will be a lag in updated rules and regulations to support such disruption.

BY Saket Sarda - Head of Trade, ASEAN and South Asia at Standard Chartered

As can be seen by the emergence of start-ups such as Funding Societies and Drip Capital, progress on working capital digitisation is already underway in the industry. Similar digitisation progress can be seen in open account trade with consortium initiatives such as the Trade Information Network, collaborations such as Standard Chartered-SAP Ariba and a plethora of platforms like Greensill and LiquidX. For documentary trade flows, consortium initiatives like Voltron are emerging and there is now traction in the conversion of paper to data fields (via platforms like Traydstream) which enables more data-centric decision-making.  

As various technologies such as optimal character recognition, natural language processing, machine learning, smart scripts and automated business logic reach maturity, the prospect of digital ledger technology (DLT) delivering on its potential for creating efficiency and transparency in trade transactions is getting closer to reality. However, some challenges (in addition to necessary regulatory and legal changes) remain if trade is to reach the envisaged digital nirvana.

The issues that are emerging as a concern are as follows. Firstly, various solution providers specialising in particular technologies are ignoring the integrated trade flow and do not deliver value in the entire trade flow chain. Secondly all relevant stakeholders should be integrated where they can share the information on a particular trade in a secure way. Lastly, due to the emergence of competing platforms, multiple consortiums and differing industry practices, digital islands (silos disconnected from each other) have emerged, when the desired end state is a digital continent or better yet, a digital globe.

By giving all participants in a trade flow access to an encrypted distributed ledger and certainty as to the integrity of information pertaining to the transaction(s) therein, DLTrepresents a major efficiency opportunity for global trade. In a DLT trade environment, buyers, sellers, banks, shippers, inspection agencies and custom authorities can add their information, verification and acceptance to a distributed ledger, without changing any other information. This level of transparency and security means that the delays and costs associated with existing paper processes can be removed, thereby also accelerating the recycling of working capital and boosting profitability throughout the ecosystem. This unified and clear process can also be used to provide financing to un-banked and under-banked corporates based on acceptance and verification by the trade community.  

Next steps to Digital Trade Economy

It is apparent that for trade to fully reap the benefits of the digital world, the following things still need to happen:

  • Common standards for digital trade documents and digital communication bridges need to emerge for more end-to-end integration across stakeholders and their digital islands. In this respect, organisations such as the United Nations Commission on International Trade Law (UNCITRAL) can play an important role in helping to develop an improved legal framework for the facilitation of international trade and investment via DLT.2 Technologies such as application programming interfaces (APIs) can help link communication across islands.
  • Besides playing an active role in defining and adopting electronic legal frameworks and regulations as required and discussed above, governments are also crucial in terms of contributing trade volume in their role as buyers or sellers.

Achieving a digital globe

Much could also be achieved with greater government involvement, because of governments’ dual roles as both large buyers and as the source of law and customs regulation. Governments are therefore both consumers and creators of the data that is invaluable in digitising trade finance. Many governments in countries like Thailand, UAE, Hong Kong, China , India are working towards such digital initiatives and one good example is the Networked Trade Platform created by the government of Singapore.

To achieve a digital world of trade finance there is therefore a need for common standards for roles, responsibilities, communication, security, trust, and rules so that continuous digital bridges can connect the various islands. Without these bridges and a solution that integrates the entire trade flow, paper processes will probably persist, as complete trade flows cannot be digitised.


https://en.wikipedia.org/wiki/Distributed_ledger

2https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/12-57491-guide-to-uncitral-e.pdf

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