The Start of Digitisation in Trade Finance
Introduction to Trade Finance
Trade Finance at its core, has existed for thousands of years and can be seen in early documentation of Silk Routes. Fast forward to the present day, Trade Finance remains key to global trade. According to the World Trade Organisation (WTO), 85% of global trade is supported by a Letter of Credit.
Trade Finance is the financing of international trade flow. In its simplest form, it exists to provide trust and security between a buyer and seller as well as their respective banks.
Key Documents Associated with Trade Finance
The processing of documents is the key area that remains un-digitised. Despite the constant growth of Trade Finance, the core process has changed very little. Even in the last several decades of major technological disruption, key documents like a Letter of Credit has remained largely un-digitised, outdated and inefficient
The Letter of Credit itself can be traced as far back as 3000BC, where ancient Babylonian and Egyptian civilisation would use it to ensure payment between parties but despite massive strides in technological advances in the past five millennia, the concept has remained relatively unchanged.
The Letter of Credit is not the only document that is associated with Trade Finance. Many other functions and forms of Trade Finance have remained paper-based. A list of key documents that often appear in transactions are as follows:
- Bill of Lading - legal document between a carrier and shipper that contains the details of the goods.
- Air Transport Document, Road Transport Document, Rail Transport Documents or Inland Waterway Transport Documents - transport documents used in air shipments, truck shipments, train shipments etc. Contains details of the goods and destination etc.
- Insurance Policy – contract in which the seller receives financial protection or reimbursement against losses from an insurance company.
- Insurance Certificate – non-negotiable document by the insurance company verifying the insurance policy.
- Bill of exchange – Written order that obligates one company / individual to pay another on demand or at a predetermined date.
- Pro-Forma Invoice – document that is sent to buyers in advance of a shipment containing the bill of sale.
- Commercial Invoice – document required by customs contain the transaction between the buyer and seller and the details of the goods.
- Packing List; Weight List – Shipping document with the goods containing details such a s quantity, weight, type etc.
- Certificate of Origin (CO) – document contain stating the country in which the good or commodity was manufactured in.
- Consular Invoice - A document containing information such as the consignor, consignee and value of the shipment. The purpose of the document is to certify the shipment of goods.
Why Digitise Trade Finance?
Trade Finance remains very traditional therefore as globalisation occurs, it results in more complex supply chains and the need to work with a greater number of dispersed counterparties. This further slows the process down that takes weeks currently.
There are many reasons for why the entire process is slow to begin with; some are as follows:
- Shipping of physical documents
- Key individuals checking each document are complaint against all regulatory and sanctioning boards
- Any incorrect documentation lead to repetition
- Manual process adds working capital delays and costs
There are multiple companies attempting to streamline the Trade Finance process. Traydstream’s approach to digitising and automating Trade Finance can be described simply with 3 simple steps: Convert, Check and Manage.
Convert: Through our Optical Character Recognition Engine (OCR Engine)
- Converts paper-based information to digital information
- Information structured to allow for automated analysis and monitoring
Check: Using our Artificial Intelligence (AI) and Machine Learning Technology (ML)
- Rules governing world trade such as Uniform Customs and Practice (UCP).
- Sanctions and dual use of goods checks including Financial Services Authority (FSA)
Manage: Using our Secure Cloud Platform
- Auto-classifies the type of documents being processed
- Manages and stores the flow of documents and images among parties and for audit / traceability.
Through this method Traydstream is able to digitise and automate the entire process to revolutionise an ancient sector.
With Traydstream’s innovational introduction of TraydServ, a cloud based platform, the entire cycle of Document Scrutiny is completed in the steps as outlined above. The manual processes are eliminated with the collaboration of Machine Learning and Artificial Intelligence with digitized documents. Where a manual document checker spends 30 to 45 minutes towards a single document check exercise and another 5-10 minutes drafting observations – a total of about 55-60 minutes, at Traydstream this time is drastically brought down to 7-9 minutes.
Traydserv recognizes around 160 documents with about 3000 different attributes. Its proprietary Rules Engine – a ‘Rules Wiki’ can read and understand clauses from letter of credit which facilities document checking. The document checking is not merely restricted to UCP and ISBP but goes beyond to transaction level checking including document consistency checking. TraydServ is Traydstream’s solution to Trade Finance Document Scrutiny – a platform created by Trade Finance Professionals for Trade Finance Professionals.
FinTech is the Future of Trade Finance: Conclusion
Trade Finance has changed very little in its long history but FinTechs such as Traydstream have commenced to make waves with new technologies that is here to bring changes to the inefficient sector.