Ending The Digital Tug-Of-War That Keeps Trade Finance In The Dark Ages

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The barriers that once prevented corporates from expanding on a global scale have largely come down in recent years, and cross-border trade is now not only more accessible than ever, but often imperative for the success of an organization.

International growth has created immense change within the enterprise, particularly in areas like treasury management as corporate finance leaders are now tasked with working with multiple currencies, languages, and  regulatory frameworks. Managing finances across borders is no easy task, however, and while trade finance is key to fueling this global trajectory, it’s a complex ecosystem involving multiple parties and legacy workflows.

According to Mitigram CEO Milena Torciano, the trade finance space is at a crossroads.

“Globalization and digitization have transformed companies into digital enterprises, and new market opportunities and counterparties can potentially be found and exploited quickly,” she recently told PYMNTS. “However, trade finance has not kept up.”

Connecting The Counterparties

Even among the largest global corporates, Torciano noted, spreadsheets and manual data entry remain the norm to manage trade finance transactions. This means that the same data can be stored across multiple platforms, and while key documents may be kept in shared drives, data discovery remains a highly tedious task.

Within the enterprise, finding the right information can be a headache. But trade finance is all about collaboration — particularly between corporates and banks — so when information is stuck behind silos, trade finance workflows quickly run into bottlenecks and confusion.

“There are only a very limited number of communication channels, which are all rather clunky, that enable corporates to speak with their banks,” said Torciano, highlighting the frustration that can emerge from professionals having to log into various internal platforms, as well as multiple banking portals, in order to send and receive documents, instructions and requests to facilitate trade finance.

FinTech has elevated its focus on trade finance in recent years, often with the focus of creating an interconnected ecosystem between the multiple parties that must collaboration in order to facilitate a trade finance transaction. The challenge, according to Torciano, is that many of these portals are closed, with various banks and corporates using proprietary or differing solutions to communicate, share information and transact.

The only way to effectively foster integration across all stakeholders is to embrace a system- and channel-agnostic solution, she said.

A Joint Effort

Despite initiatives to standardize communication and connectivity between corporates and their banks, the ecosystem has unwittingly created new silos as more platforms and standards mean more friction for stakeholders having to toggle from one solution to the next.

This pain point highlights a troubling conundrum in the trade finance market: standardization only derives value if everyone gets on-board.

“Take SWIFT, for example, where many banks have invested money in adopting MT798 messages to cater for instructions coming from corporates in a more standardized and structured way,” explained Torciano. “This investment needs to be paid off, which can only happen if corporates start to use Mt798 instead of sending paper-based documents or email.”

Similarly, financial institutions have invested in a variety of networks and solutions that are closed, meaning corporates have to be onboarded to a variety of these portals for each banking partner.

True digitization and efficiency in trade finance will only be achieved when solutions that support message standardization, data integration and transaction capabilities can loop into any bank portal or other system. Only then will trade finance be able to become as agile as it needs to be to support the fast-paced nature of global trade today.

“Everyone needs to pull in the same direction to drive digitization,” added Torciano. “One side cannot change without the other.”

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About The Study: A New Approach For Modernizing Payments In Banking, a PYMNTS collaboration with Red Hat and Temenos, is a research-based report examining the trends transforming retail commerce and how these shifts are creating new challenges and opportunities for banks. The report aims to offer banks a roadmap to help them gain the technical capacity to support digital payments in all their forms.

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