As international trade has progressively moved towards digital processes, much of the attention has understandably been on replacing paper, whether through electronic bills of lading or the electronic presentation of documents under documentary credits. Perhaps the more interesting question now is what happens to the information within those documents as it moves through the transaction, particularly when it needs to pass between different parties and systems.

A recent ITFA paper, Digitised, Not Yet Interoperable: The Missing Layers in Digital Trade, approaches the issue from precisely this perspective. Following a documentary credit transaction through the Buy-Ship-Pay chain, it identifies how information that already exists digitally can nevertheless be repeatedly entered, transformed or reconciled as it moves between commercial parties, transport providers and banks.

This perhaps exposes one of the less obvious limitations of the progress made so far.

Replacing a paper invoice with an electronic invoice clearly represents digitisation, as does replacing a paper bill of lading with an eBL. However, if information still has to be extracted from those records, entered into another system and checked against information from another electronic record, we may have digitised the documents without fundamentally changing the processes built around them.

Documentary credits provide a particularly good example because electronic presentation under the eUCP does not, by itself, make documentary examination data-driven. A bank may receive records electronically whilst continuing to examine them in much the same way as it did when documents arrived across the counter or by courier, meaning that the medium may have changed considerably more than the underlying process.

The ITFA paper suggests that much of what is needed to address this already exists, although making the different elements work together remains a considerable challenge. If information has already been created electronically at one stage of a transaction, there should be less need for it to be extracted, re-entered, and then examined again simply because it has moved to another party or system.

This does not remove the need for banks to examine information or satisfy themselves that the requirements of a documentary credit have been met, nor does it alter the regulatory obligations that apply to the transaction. It does, however, raise the question of how much of the existing process remains necessary when the information being examined already exists in a form that can potentially be used throughout the transaction.

It is highlighted that this is where we need to look beyond whether trade finance has become digital and consider how far the process itself has actually changed. Removing the paper is clearly part of that change, but if the information within it continues to be extracted and processed much as it was before, we may not yet have moved as far as we sometimes assume.

Source: ITFA

This article represents the views of the author and not necessarily those of ICC