With its document-heavy processes, trade would seem ripe for digitization – but many processes are mainly the same today as they have been for years. Even electronic invoicing, which is perhaps the most widely digitized process between companies, only accounts for about 8% of global volume.
The digitization we have seen to date has typically solved a single problem, which is no longer sufficient as more and more solutions become available. To move forward, it’s critical that both legacy and new applications can be layered together. Digital solutions must also deliver value to all supply chain participants – not just buyers but sellers, logistics providers, other buyers and financial institutions. This includes establishing wider, more inter-connected networks that reach across the entire supply chain.
HSBC invited financial technology experts to share their thoughts on what needs to happen for the industry to take the next step towards digitization. Here’s are highlights from their discussion at our event, The State of Global Trade 2019.
Breaking down the silos of single trade solutions
To encourage adoption, moving toward digitization must be easy says Carlos Arena, Head of Americas Business Development at R3, a blockchain technology company. “We need to move away from the various silos we’ve created over time – with individual portals or systems for one or two processes that corporates then have to reconcile with other processes and data,” he says. “Instead, it’s about developing a middleware that allows for settlements, onboarding and trade – a system that is flexible and able to embrace some of the legacy solutions companies have invested in, as well as integrate new solutions seamlessly.”
For R3, that means establishing a direct connection between books and records from corporate-to-bank, corporate-to-corporate and corporate-to-logistics providers without needing to go from one system or application to another. “This gives companies a working capital solution that tells them how much cash they need in March, for instance, and what they need in receivables to finance it,” Arena explains.
Priyamvada Singh, Head of Product Management, Global Trade and Receivables Finance, North America at HSBC, agrees that the siloed approach to products needs change. “The way global value chains are transforming, it’s more about getting access to the data that’s linking our clients and their supply chains than it is about individual products,” she says. This gives banks the visibility they need to align financing at the exact point clients need it. “This kind of visibility benefits the entire industry,” says Singh. “Companies know they can access financing without having to rely on traditional scoring methods. Banks can use the data to be more credit aware, which helps with de-risking. Plus, there’s better security since information sharing is open and public, minimizing the risk of fraud.”