Trade Finance Digitisation Hastened by COVID – SWIFT
(17 August 2021 – Global) Based on the swathes of data flowing through its global interconnected trade network combined with key stakeholder feedback, The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has highlighted how important efforts to digitise trade finance are for significantly reducing friction in global commerce and translating that directly into economic growth.
SWIFT reported that documentary trade finance declined by as much as 49 percent week-on-week by early Q2 2020, taking the rest of the year for merchandise trade volumes to recuperate to eventually end the year lower by 11 percent in total.
Despite the COVID pandemic discernibly shrinking overall global trade and leaving a lasting legacy of supply chain disruptions, usage of SWIFT’s Digital Trade Channel solution increased by 72 percent in 2020 with the Belgian headquartered limited liability cooperative processing over US$2 trillion in documentary trade. This customer driven shift emphasises the growing demand among corporates for digitisation.
In SWIFT's latest information paper “Digitising trade – the time is now”, although technology is found to have the potential to decrease processing times, costs and risks, it is simply not enough in isolation.
The research identifies three key elements that are required for effective trade digitisation in an ecosystem that is characterised by a myriad of actors, technologies, standards, rules, regulations and legal jurisdictions:
- Technology
- Legal harmonisation / standardisation
- Interoperability
These three factors combined play a crucial role in ensuring connectivity between both physical and financial supply chains, and enable digitisation efforts to scale and thrive. A key change to trade finance messaging is approaching in Q4 2021 with the new SWIFT Release 2021 supporting the shift away from unstructured messages to more complex and structured message types that allow for increased automation and straight-through processing (STP). The SWIFT Release 2021 upgrades the functionality and format of messages for Guarantees and Standby Letters of Credit, building on the updates to Documentary Credit messages completed as part of SWIFT Release 2018.
“The pandemic has underlined the need to accelerate the digitisation of trade. We will support these efforts by expanding our capabilities beyond messaging and documentary trade, while building on our API capabilities, our partner strategy and our role as a standards authority” said SWIFT Head of Trade Strategy, Louise Taylor-Digby.
“We are working towards a future ecosystem, one that offers the community access to both proprietary and third-party trade services via the SWIFT platform while leaning on our identity, security and standards protocols. This is backed by our ability to reach over 11,000 institutions and the 4 billion customer accounts they serve. We invite the community to join us on this exciting journey” Taylor-Digby added.
“We are not at the beginning of the trade digitisation journey, but are probably in the middle of it. I think the industry is around five to ten years from having it solved, By focusing on three elements – legislation, standardisation and technology, we will be able to make the transition in a sustainable way” commented ICC Digital Standards Initiative Managing Director, Oswald Kuyler.
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