Great strides have been made in the retail banking and payments space via innovative financial technology products. However, in the corporate banking space, the developments and transformation into a truly digital platform have been more muted. This small case study provides a mock-up of how a fully digital, secure, and authenticated transaction can take place using a single one-stop application.
The client is a medium sized manufacturer based in the European Union. They have a cluster of vendors which provide the raw materials and some distributors which eventually sell the products locally. However, the client now wants to add some new distributors in the EU itself. Given the tight margins and competition in the client’s industry, it is not cost effective to trade via formal documentary credit products. Moreover, the client would have to provide credit to the new distributors so that they can sell the goods and then pay back the client in 90 days’ time.
Currently, the client and it’s vendors/ distributors have to engage in a lot of paper based activity. The purchase orders, invoices, transport documents etc. all have to be signed, scanned and shared in order to complete the transaction. Not only is the process time consuming, it does not provide a clear, real time picture of what’s going on. All of this translates into time delays and cost escalations.
The requirement is for a single window which provides real time information to all involved parties (the buyer, the seller, their banks and the transporter) in a secure environment where the identities of all parties can be established while ensuring non-repudiation.
Most banks have their own transaction processing systems in place. However, the problem with these systems is that they do not talk to each other and operate in their own silos. Eventually, communication between the parties and the banks becomes tedious and manual. Banks usually rely on SWIFT messages in order to process trade transactions – these require a lot of manual intervention and cost both in terms of time, money and are even prone to the occasional error. The truth is that automation in corporate banking has lagged behind developments in the retail banking space.
Now let’s see what a fully digital, secure and authenticated trade platform can achieve
The client uploads the details of the shipment on the trade portal. The transporter gets the notification and schedules a pick up automatically. The good are transported to the distributor in another EU member country. The transport documents, goods received note, etc. are generated by the trade application and all three parties have real time access to the documents. The documents are signed digitally by authorized personnel whose identities are authenticated by the trade application.
The distributor then goes about liquidating their newly acquired inventory. On the agreed date, he makes the payment against the digitally generated and signed invoices which are already accessible in the trade application. The payment instruction itself is sent to distributor’s bank via the trade application. The entire process is done via the trade application and is fully verifiable and authenticated.
References and Further Reading
- The Digital Trade Initiative - Introduction
- Selected articles on Authentication (2014-16), by Heather Walker, Luis Balbas, Guillaume Forget, Jan Kjaersgaard, Dawn M. Turner and more
HSBC and Barclays pilot banking without borders (2017) by Antony Pyton
- Selected articles on Electronic Signing and Digital Signatures (2014-16), by Ashiq JA, Guillaume Forget, Jan Kjaersgaard , Peter Landrock, Torben Pedersen, Dawn M. Turner, Tricia Wittig and more
- REGULATION (EU) No 910/2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC (2014) by the European Parliament and the European Commission
- Recommendations for the Security of Internet Payments (Final Version) (2013), by the European Central Bank
- Security Controls Related to Internet Banking Services (2016), Hong Kong Monetary Authority