Digital Trade - A New Frontier For Financial Institutions and Product Vendors

Digitalisation of Trade

The digitalisation of trade has emerged as a strategic priority for regulators, industry bodies, and financial institutions worldwide. This concerted effort is driven by the recognition that digital tools and technologies can significantly enhance the efficiency, transparency, and security of global trade processes.

As the development of standards and legal frameworks for digital trade continues to evolve, parties involved in trade transactions are recognising the importance of proactive preparation. By taking steps to prepare their systems and processes for adoption, trade ecosystem participants can ensure a smooth transition, stay competitive, and maximise the benefits of digital trade.

The success of digital trade transformation hinges on this proactive approach. Stakeholders who prioritise system modernisation, data standardisation, and engagement with digital platforms are better positioned to thrive in an increasingly digital trade ecosystem.

The Role of Financial Institutions in Digital Trade

Financial institutions are the linchpin of digital trade, playing a pivotal role in facilitating trade by offering a range of products and services tailored to meet the needs of exporters, importers, and intermediaries.

However, the digitalisation of trade processes is set to transform trade finance, driving it towards commoditisation—a shift where financial services become standardised, widely accessible, and less differentiated among providers. This transformation is fundamentally reshaping the competitive landscape among trade finance providers.

A New Competitive Landscape

As digitalisation levels the playing field, competition among trade finance providers will shift from product uniqueness to factors such as cost-efficiency, speed, and customer experience.

As digital documents continue to gain traction, the opportunity to automate document checks and data entry will become increasingly prominent. This shift will enable banks to drive automation at unprecedented speeds, unlocking substantial cost efficiencies while significantly accelerating transaction processing.

Some processes currently executed in banks' back offices will shift to front channels, empowering customers with greater control through self-service capabilities. This transition will not only enhance customer experience but also reduce processing costs by streamlining workflows. For example - AI can generate and suggest guarantee text templates based on customer inputs, simplifying the process and reducing back-office intervention.

We will also witness the emergence of marketplaces for trade, where banks and financial institutions will compete to offer financing products. These platforms will provide businesses with greater access to a range of financing options and fostering competition.

With the availability of digital data and advanced technology, collaboration and innovation ecosystems are poised to reach the next orbit. Enhanced data accessibility and real-time connectivity will empower stakeholders across the trade ecosystem to co-create solutions, streamline processes, and unlock unprecedented levels of efficiency and value.

There is a pressing need for banks to modernise their systems to enable and fully leverage the benefits of digital trade.

System Readiness for the Digital Era

The trade finance software that many banks rely on are faithful workhorses, serving institutions reliably for decades. Designed for a different era, these systems were purpose-built to handle the manual, paper-intensive processes that once defined trade finance. Over time, they have provided unparalleled stability and consistency, forming the backbone of global trade operations.

However, as the trade ecosystem undergoes a digital transformation, these legacy systems are increasingly proving to be ill-suited for the demands of the modern era.

The digital age requires agility, the ability to be real-time at all times, and openness—capabilities that many older systems struggle to provide

Banks recognise that bridging the gap between legacy systems and market demands is not just a technological imperative; it is a strategic necessity. Banks that invest in modernisation and innovation will be better equipped to thrive in the new competitive landscape, delivering value to clients while maintaining their relevance in a rapidly evolving trade ecosystem

Capitalising on the digital shift

Trade finance software product vendors today are taking one of two primary approaches to meet the evolving demands of the digital trade ecosystem: either repurposing their existing offerings or building from the ground up

While repurposing existing systems offers a clear advantage in terms of time to market, building a solution from the ground up provides a different level of flexibility.

For product architects, building from the ground up offers a "blank slate," where they can exercise creativity and fully realise their vision for a modern, efficient, and highly functional product.

Starting fresh enables product architects to fully embrace the latest design principles such as headless, composable, and cloud-native architectures, create user-centred experiences, and easily integrate AI and automation.

Building a solution from the ground up not only offers immediate flexibility but also allows for future-proofing the system by making necessary provisions early on.

Case in point is provisioning for Multi-Lingual in the Database or support for Multi-Tenancy. These features are a necessity for global banks and the foresight ensures that the system can evolve without requiring costly and time-consuming re-architecting down the line.

Thus, while repurposing is a quicker path to deployment, building from the ground up provides an exceptional level of flexibility and innovation, making it a dream for architects who want to design a future-proof product that can stand the test of time.

Conclusion

The digitalisation of trade is no longer a distant prospect but an ongoing transformation reshaping the global trade ecosystem. As regulatory frameworks and industry standards continue to evolve, stakeholders in the trade ecosystem, particularly financial institutions, must proactively modernise their systems to stay competitive and maximise the benefits of digital trade.