Making the Most of Data in Trade Finance
In September, Sibos returned to celebrate its 45th anniversary in Toronto. The conference, which brought together more than 9,000 members of the finance community from across the globe, explored the theme “collaborative finance in a fragmented world”.
On the second day of the event, Natixis CIB’s Karine Audoux joined speakers from Citi, Visa, EY and Société Générale to discuss the obstacles to unlocking the value of data in trade finance – and how these can be overcome.
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Lack of access hindering progress
To kick off the discussion, panellists shared their views on what they perceived to be the biggest barriers to unlocking the value of data in trade finance.
Unsurprisingly, having access to digital data was identified as a key hurdle. The trade industry has long been criticised for its reliance on paper, and while the COVID-19 pandemic certainly expedited the digital transition, current innovations are not yet sophisticated enough to make this a sector-wide reality.
Optical Character Recognition (OCR), for instance – which converts scanned documents into digital files – has become a widespread solution for data extraction. Today’s technology has the capacity to process documents and identify information to a high degree of accuracy – but it is not a silver bullet solution.
OPTICAL CHARACTER RECOGNITION HAS BECOME A WIDESPREAD SOLUTION FOR DATA EXTRACTION, AND IT HAS THE CAPACITY TO IDENTIFY INFORMATION TO A HIGH DEGREE OF ACCURACY – BUT IT IS NOT A SILVER BULLET SOLUTION.
Indeed, due to the complexities associated with trade documents – including a lack of quality, multiple formats of the same documents and the sheer quantity of information that must be exchanged and processed – it is still susceptible to errors.
Additionally, while a growing number of banks are successfully harnessing this solution, many of the industry’s key players do not have access to it. Smaller organisations and those operating in emerging markets, for instance, often lack the capacity and tools required for data capture. Meanwhile, there is fragmentation when it comes to the quality OCR models in use – and those that are more sophisticated have not been made universally available.
For the panel, ensuring such solutions are accessible across the sector – and not treated as an area for competition – will be crucial if the industry is to fully move away from paper.
Industry standards will boost consistency
Building on this point, the conversation turned to standardisation. For Karine, a lack of standards poses a particular problem within the trade space due to the “size and complexity” of its ecosystem.
IT’S IMPORTANT TO FIND MULTIPRODUCT SOLUTIONS THAT SHARE TECH AND DATA, AND TO THEN CERTIFY THE RELIABILITY
The vast range of players, interpretations, systems and understandings mean there is an industry-wide lack of consistency when it comes to processing data. Coupled with security concerns, this often leads to a duplication of efforts when carrying out common due diligence practices such as AML and KYC. Alongside growing regulatory burdens, this is contributing to a lack of efficiency and unnecessary costs.
An important first step, according to panellists, is the adoption of national laws. Notably, the UN’s Model Law on Electronic Transferable Documents (MLETR) provides a strong foundation upon which standards can be built. Yet rolling these out on an industry-wide basis will require both time and a unified approach, as well as a range of technologies and solutions.
As part of its Digital Standards Initiative (DSI), the International Chamber of Commerce (ICC), for instance, published its systematic digital standards analysis earlier this year. The report identified the key data elements held in seven trade documents – including certificates of origin, bills of lading, warehouse receipts and insurance certificates – and provided guidance on how digital standards can facilitate the more seamless sharing of data digitally.
Meanwhile, in order to address security concerns associated with the distribution of this data, panellists discussed the potential role of third-party verification software in certifying its accuracy, as well as ensuring that it originates from a trustworthy source. Not only would this help to cut down on costs, it would also help to combat rising levels of fraud within the market.
What lies ahead?
From increasing efficiency to building a more unified industry, digitalisation in trade finance is more important than ever before. Central to this is the ability to harness and optimise data – but the industry has a long way to go to achieve this goal.
In this complex ecosystem, one of the prerequisites to make an ideal “Data journey”, is to harmonize and standardize the most important documents.
To do so, regulation has to be modified, and the MLETR (Model Law on Eletronic transferable Records) project has this ambition. Natixis actively contributes to this project to create industry standards and is at the forefront of this data-based transformation.