Trade Digitalization - Key Drivers, Challenges and Solution Approach(es)

Changing customer expectations, quest for process efficiency and business growth, growing industry and regulatory support for digital trade continue to be the key drivers for digitalization of trade finance.

Given the archaic interaction mechanisms and customer demand for better experience, channels continue to be the area of immediate focus for banks and financial institutions that offer trade finance. On the other hand, the transaction processing systems are being modernized to achieve flexibility, openness, scalability, and speed; enabling banks to overcome the disadvantages that come with the legacy systems commissioned at least two decades ago.

However, 60%-80% of the processing time and effort is consumed by business steps that are executed between application and processing. Collectively, these steps are called “pre-processing” or “pre-checks”.  Optimal digital adoption in the pre-checks stage has the potential to significantly bring down the processing cost, time as well as errors.

As with any business process, trade pre-processing is an interplay of events, activities, decisions, actors & resources to achieve the desired outcome.

Trade finance being business rule heavy, an event like issuance or presentment of LC can go through a maze of activities like document scrutiny, compliance checks, credit & pricing decisions, credit insurance applicability, collateral availability checks and more.

These activities are multidisciplinary and involve decision making at critical junctures. Most times, arriving at a conclusion needs interaction with the customer and inter-departmental communication.

Such interactions draw supporting data from resources in paper/electronic form. Extension of credit limit, for example, needs intervention from at least three actors – trade operations, relationship manager & credit risk department – and reference to credit agreement.

Thus, for streamlined and efficient trade pre-processing, the basic requirements are -

1. Inter and intra-departmental structured communication
2. Event driven seamless data exchange and workflow
3. Role based job-queue dashboards
4. SLA definition and tracking
5. Alerts/Notifications

However, the current state leaves a lot to be desired. Sample these bank staff responses -

Q: How do you ask for extension of Limit?

A: Trade Ops emails Risk Department for extension of limit

Q: What do you do if the KYC was approved X months ago?

A: Trade Ops calls RM to get the KYC updated

Q: How long do you wait for the response? Any SLAs?

A: There are SLAs but we follow-up with RM/Others manually

Q: How is the job allocation done?

A: We have a lead who does that manually in job allocation tool and we get an email to notify

Q: Is your customer facing channel integrated to job allocation tool?

A: Pre-checks on email request from customer. Application is submitted later through portal

This sample set of responses is from multiple trade solutioning exercises that I have been part of. The responses vary depending on the extent of digital adoption. End to end automation may not be possible for all processes. However, by and large, banks realize that there are significant benefits to be achieved by streamlining trade pre-processing and there is interest in solutions that would help them do that.

Some of the areas being explored

1.      BPM tool to cater to interplay between manual and automated steps of trade pre-processing

2.      APIs (example – Document Check API) for automated process execution through BPM

3.      Integration of customer portal to BPM - tracking dashboard to customers.

4.      BPM to trade product processor integration

5.      Staff dashboard and multi-departmental access to BPM – this would help define and track SLAs, notify/alert the respective department when an action is due

6.      Digital collaboration and contract management

This is just one approach. There are more and there is no better time to be on the ground encountering trade digitalization challenges and helping solve some.