Digitisation of trade finance has huge potential to deliver significant benefits to corporates, banks, carriers and other trading partners. As well as reducing the time, costs and risks of trading, digitisation opens up a new level of visibility, from one end of transactional processes to the other, bringing clarity and oversight to all connected parties.
Despite these crystal-clear advantages, however, digitisation continues to be enveloped in many myths, all of which need to be dispelled.
Here are the eight most common myths about digitisation and why they need to be busted.
1. Digitisation always has to be a big bang approach
This is simply not true. Companies can proceed with digitisation at their own pace and integrate digital trade platforms into their own processes one step at a time. Digitisation can be at the minimum, light-touch level or wholly integrated. It is perfectly feasible to have a mixed environment in which both paper and digital documents are used in response to requirements and business needs. Companies should use digitisation to address their own pinch-points, which may arise from the need to be paid more often or to get hold of goods more quickly.
2. It’s not secure
Many businesses have a deeply-ingrained fear of using anything in the cloud, believing that they will be hacked, with devastating consequences. In fact, Know Your Customer regulations all apply to digital trade platforms, along with total control of access and configuration. Not only do participants know the identity of the other parties that they are dealing with, they are all also legally bound by the rules that govern participation. Communication controls, for example, mean that no message can be sent without a response – there must always be a return message so that the parties know if their message has been successful. In addition, there is a full audit trail, recording every amendment and interaction to provide effective supervision and reassurance.
3. Digital trade transactions are not legally-binding
Legal underpinning is one of the essentials of a digital trade solution. In Bolero’s case, counterparties must subscribe to a rulebook that is solidly founded on common law principles and is multi-jurisdictional. The rulebook is a multi-lateral contract that binds each user, with agreement on a common set of rules. These rules determine, for example, that electronic communications will be treated as valid and that no user will deny that it sent a message bearing its digital signature. This legal framework allows organisations to replicate the legal results currently achieved in a paper environment.
4. My bank does not support digitisation
This is another mistaken belief, because in reality, more and more banks are subscribing to digital trade platforms. Bolero for example provides access to the largest network of banks connecting over 65 banking groups from around the world and the uptake is only likely to grow. Banks already have plenty of experience of exchanging messages digitally. For the last 28 years, they have been using the SWIFT system. Any company wanting to shift to the electronic presentation of documents in order to reap the rewards of going digital, may well find its bank is already participating.
5. This is a stand-alone solution and does not integrate with my existing business systems
Digital trade platforms can be partially or fully integrated with existing business processes and systems such as ERP and Treasury management systems and organisations should not be concerned about whether integration will succeed. They can adopt digital processes partially or wholly, according to their needs and the problems they want to solve or the benefits they want to achieve.
6. Using digitised documents and instruments is expensive
Switching to a digital solution costs just a fraction of what is required to administer paper documents. Paper documents have to be manually checked and physically transported between counterparties, accumulating costs and taking up valuable time. Companies using electronic documents eliminate these costs and achieve further gains in efficiency, by for example, achieving faster reconciliation, being paid or receiving goods more rapidly.
7. It’s only for international trade
The belief that digitisation only works in the context of international trade is also mistaken. Bank guarantees and documentary collections for example, are vital in many domestic transactions and are perfect candidates to be digitised. The digitisation of these documents, with controls on access and full audit trails, gives far greater security and protects all involved from common types of fraud.
8. Does every party have to be digital?
No, it is not necessary for every party to be digital, because all participants are subject to the business flows and regulations that are written around the processes, which enable a mixture of both electronic and paper communications to be employed. The over-riding factor is that all digital instruments comply with legal and regulatory requirements, just as their paper counterparts do. Using a combination of paper and digital will still yield savings, even if they are not as substantial as can be achieved through total adoption of electronic documents.