How total digitisation unlocks new opportunities in trade finance

By December 2025, ISO 20022 will become the new universal standard for electronic data interchange between financial institutions. While many countries have set a go-live date in 2023, many banks and corporations say they are not ready, which experts say is not surprising.

Financial institutions not being ready is very common as many of them navigate the new digitisation landscape and tackle new challenges in trade finance. The COVID-19 pandemic forced many institutions that didn’t have prior plans for digitisation to quickly adapt for survival. While they recorded immense benefits from digital solutions the method of adoption has been in silos and targeted at only specific areas of the business.

However, only by embracing total digitisation would companies, especially financial institutions and corporations be able to address new problems in trade finance, according to experts at the GTR West Africa 2023: Trade and Supply Chain Conference.

Traditionally, large financial institutions have the tendency to develop, approve and implement standards without seeking input from other organizations. The result is increased cost of operations and inefficiencies in service delivery.

Segun Aribisala, Product Manager, Union Systems, said correcting inefficiencies is why the new standard ISO 20022 from ICC and SWIFT is important for organisations in terms of trade finance. The standard is a way to further enrich the data being circulated and shared amongst the stakeholders

This is again a way for SWIFT messaging standards to further enrich the data being circulated and shared amongst the stakeholders, in the payment settlement and trade particularly.

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“There is a new rule that is coming up for uniform rules for trade finance strategies. All of these rules are to further improve on digitalisation and of course the acceptability of digitisation,” he said.

Union Systems has been proactive in creating solutions that seek to bring uniformity in trade finance operations. For example, Kachasi Trade Finance software, is the first indigenous trade finance software application built to automate the entire lifecycle of international and domestic trade finance operations. According to the company, it is the result of over 20 years of experience implementing and customising various international trade finance software applications for banks across Africa.

The company also developed the Optimus Multi-bank Trade Finance Portal in 2020. The cloud-based application empowers corporates to have a consolidated view of all their trade transactions with different banks without having to visit the banking hall.

In as much as banks have embraced the solutions, Segun says much of the corporates are still contemplating their decisions.

“It is more acceptable in the banking world where you consummate payments on behalf of the customers. But the acceptance from the corporate angle is still not yet there and that is what the URDTT of ICC rule is going to address,” Segun said.

URDTT is an acronym for Uniform Rules for Digital Trade Transactions which came into force on October 1, 2021. A Digital Trade Transaction is a process, whereby electronic records are used to evidence the underlying sale and purchase of goods or services, and the incurring of a Payment Obligation.

The URDTT shall apply when the terms and conditions of a Digital Trade Transaction specify that it is subject to these rules.

Manji Gofwan, head Foreign Operations, Union Bank, said the difficulty banks and corporates have in following the rules is because many of them still feel comfortable with the traditional ways of conducting rather than embrace total digitisation. Hence many if the digital solutions that are being deployed in banks only replicate the traditional solutions, with the difference being that it is now electronic. Not much Disruptive creativity is being put into these solutions.

“Example, to apply for a letter of credit there are 20 to 30 fills that you need to fill, to apply for a letter of credit you create a digital channel and we give you 20 fills to fill. We have digitised it with the same mindset. That is where we are. We are on a journey but I think that in the trade space we are still playing catch up,” Gofwan said.

He says automation would help corporates to better position their trade business in different ways.

Segun says it is encouraging that the CBN is already working towards improving its digital infrastructure ensuring there is more efficiency in the banking system. This means the regulator is in tunes with similar developments around the world.

“We have seen the impact in the advanced world in Asia and Pacific areas. We have seen different trade agreements coming up to further enjoy the full benefits of trade digitisation,” he said.