Trading of goods in international market is complex and fraught with risks and uncertainties. Transactions are made between entities in distant countries and there is often a trust deficit between sellers and buyers. And this is why risk-mitigating trade finance products such as the Letter Of Credit dominate this space. Trade Finance is one of the most paper heavy and human labor-intensive segments in banking. The International Chamber of Commerce (ICC) estimates that upwards of 4 billion pages of documents circulate in documentary trade. Trade finance operations analysts go through a daily grind to process thousands of trade related documents such as Bill of lading, Packing List, Commercial Invoice and Certificates of Origin to ensure the trade complies with conditions in the Letter of Credit and comply with UCP and ISBP rules as mandated by the ICC. Most banks have hundreds of document scrutiny analysts handling this function in their back offices.
Trade Finance has traditionally been a laggard when it comes to adoption of automation and emerging technologies. In the recent past, many disruptive Fintech companies have penetrated the market with their innovative technology led solutions. And banks have started responding by adopting platforms powered by technologies such as Robotic Process Automation, Artificial Intelligence and Blockchain. It is worth noting that in the 2018 ICC Global Survey, 60% of the banks surveyed claim to be digitizing their trade finance operations, but only 9% of banks have implemented solutions. However recent breakthroughs in OCR technology and advancements in AI has helped accelerate these efforts.
The ICC anticipates that the uncertainties created by Covid-19 pandemic will result in increased demand for trade finance products, as businesses tend to use these products more perceiving an increase in geopolitical and commercial risks. While international trade and related trade finance has slowed down during the peak of the pandemic, there are already signs it is recovering faster than expected. If the anticipated V-shaped recovery unfolds in most economies, a massive surge in demand for products such as Letters of Credit and documentary collections is to be expected.
Covid-19 has had an impact on the operations aspect of Trade Finance as well. Health related concerns and labor policies of many nations have resulted in remote work becoming the new normal in what was once a heavily centralized back office function. Transfer and examination of physical copies of trade documents have become difficult and have forced most banks to move towards digitization of this function. The applicability of ”4 eyes” principle where 2 analysts are required to scrutinize the documents adds to the complexity.
These factors have provided an impetus to digitization and automation of trade finance operations. Banks can no longer afford to maintain status quo and will need to accelerate the transformation and automation of this space or face the risk of more innovative players using this opportunity to massively disrupt and take away their market share. This is now a priority for executives who manage trade finance.
At Cleareye.ai, we were able to discover these market trends early in the game. Along with an anchor customer, we developed a unique product that automates document scrutiny and compliance checks for documentary credit and collections. Applying a combination of Computer vision, advanced NLP techniques and intelligent automation we have been able to deliver up to 80% productivity improvement and throughput in Trade finance screening. The platform provides a digital workbench to process trade finance transaction documents, perform automated reconciliation against UCP and ISBP rules and seamlessly integrates with Sanctions Screening systems and TBML (Trade Based Money Laundering) systems. The decision-making process of the operations analyst is automated, and the platform continuously learns from user action.
While the pandemic has disrupted supply chains, globalization and cross border trade is here to stay and Trade Finance will always be critical to fuel that engine. Innovative solutions that can help reduce cost of operations, improve compliance, check anti-money laundering, and adapt to disruptions like Blockchain and electronic trade documents will win the market.
About the Author – Sachith Sebastian
Sachith Sebastian is Chief Operating Officer of Cleareye.ai India, the dedicated product development and R&D wing of Cleareye.ai. He has over 22 years of industry experience across US and India in various technology leadership roles with companies like Verizon, Infosys and UST Global. His experience in playing various leadership roles, makes him a strong leader who establishes a vision and delivers on the promise of that vision by empowering others and being result oriented. Sachith has an MBA degree from University of Texas and a BTech degree from University of Kerala. He also has a US patent for telecom operations automation to his name.