Trade is the lifeblood of the global economy. And Trade Finance is what greases the cogs of international trade. The last few decades of globalization have meant that supply chains have become global. Procurement happens from around the world and finished goods are rushed to distributors and channel partners everywhere. Since this process of procurement, manufacturing and distributing is not instantaneous, trade finance is what fills this funding time gap.
Trade and supply chain financing products have long provided companies with a way to optimize their working capital requirements. However, there has always been a catch – processing trade finance documentation itself can sometimes cause a delay which slightly defeats its purpose. This problem can get especially acute if shipment is happening to or from some countries where supply chain processes are not well established. eIDAS can help with at least some of these problems.
Trade finance in many cases still relies on manual documentation. Digitization in trade finance offers a lot of opportunities, even in advanced economies. eIDAS can create the foundation on which digitization of trade and supply chain documentation can take place.
eIDAS – Perfectly positioned
A BCG survey of 500 corporates revealed that their biggest priority was managing risks effectively. This is not surprising considering how rapidly cyber threats and other non-physical risks are evolving. The tools provided by eIDAS can help tremendously here. eIDAS provides secure electronic identification and authentication and that can go a long way in mitigating some of the risks faced by corporations hoping to take their trade financing digital.
The second most important priority as per the survey is to improve treasury efficiency. The entire trade finance cycle right from securing the limits, to disbursement and finally closure, can be much better managed by using digital tools provided by eIDAS. Rather than having to send across physical documents and dealing with errors or other hiccups, a fully digital process can greatly improve efficiency. The eIDAS regulation also provides the relevant legal comfort to banks and corporations participating in a digital trade finance transaction.
There are various tools which are already being used to assist in this process of digitization. SWIFT provides some digital options like the MT798 which can cover part of the trade leg. There are even blockchain based solutions which are under development. eIDAS, with its industry leading security promise, can definitely go a long way to digitize trade documentation and financing.
It seems counter-intuitive but corporate banking products and services often lag behind their retail banking counterparts in terms of digitization and technology adoption. This might be attributed to a difference in transaction volume between these two segments. Nevertheless, corporate clients are now demanding fully digital solutions for all their banking needs – including trade and supply chain finance. Cyber risks have also put a greater emphasis on security. This is where eIDAS enabled tools can come in and really make a difference for European businesses trading with each other. The stakes are higher than ever before, and therefore the solutions demanded have to be of the highest quality.
References and Further Reading
- Digital Trade and Trade Financing - Embracing and Shaping the Transformation (2018), by SWIFT & OPUS Advisory Services International Inc
- REGULATION (EU) No 1316/2013 establishing the Connecting Europe Facility, amending Regulation (EU) No 913/2010 and repealing Regulations (EC) No 680/2007 and (EC) No 67/2010(12/2013), by the European Parliament and the European Council
- Selected articles on Electronic Signing and Digital Signatures (2014-today), by Ashiq JA, Gaurav Sharma, Guillaume Forget, Jan Kjaersgaard , Peter Landrock, Torben Pedersen, Dawn M. Turner, and more
- Selected articles on Authentication (2014-today), by Heather Walker, Luis Balbas, Guillaume Forget, Jan Kjaersgaard, Dawn M. Turner and more
- The European Interoperability Framework - Implementation Strategy (2017), by the European Commission
- Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (2016), by the European Commission
- REGULATION (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (2016), by the European Parliament and the European Council
Proposal for a REGULATION concerning the respect for private life and the protection of personal data in electronic communications and repealing Directive 2002/58/EC (Regulation on Privacy and Electronic Communications), (2017), by the European Parliament and the European Council
- Revised Directive 2015/2366 on Payment Services (commonly known as PSD2) (2015), by the European Parliament and the Council of the European Union
- 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
DIRECTIVE 2013/37/EU amending Directive 2003/98/EC on the re-use of public sector information (2013) by the European Parliament and the Council
Image: Deutsche Bank I and II, courtesy of Sine Pi, Flickr (CC BY 2.0)