Thursday 17 January 2019
 
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ANALYSIS

Oliver Paul

Mideast banks move to paperless trade finance

DUBAI, 11 days ago

By Oliver Paul

The trade finance sector is gradually moving towards the digitalisation of its processes, according to the International Chamber of Commerce (ICC) 10th Global Survey on Trade Finance. Banks in the Middle East are one of the most positive about the sector’s potential, despite lingering concerns regarding ongoing technological overhaul

As the trade finance sector continues its journey towards paperless trade, banks in the Middle East are particularly optimistic about the benefits such a transformation can offer. Results from the ICC’s10th Global Survey on Trade Finance indicate that the use of digital technologies and the adoption of supply chain finance methods (SCF) – which typically involve the use of an online platform – is growing in the region, despite lingering reservations about the move.

The survey, which gathered responses from more than 250 banks across 91 countries, revealed that almost 70 per cent of respondents in the region believe the sector will grow in the next 12 months, with only 5 per cent anticipating a slowdown. What’s more, this is indicative of a wider trend for the sector, with respondents worldwide especially positive about its future development over the next 12 months –indeed, only 27 per cent are doubtful about the sector’s upward trend.

Despite being one of the most longstanding objectives for the industry, the growth of digitalisation within the trade finance sector has also been the source of many challenges, bringing regulatory inconsistencies and a lack of common standards to the fore. However, with almost 80 per cent of all trade finance transactions now taking place on open account, which is especially suited to SCF, the need to establish adequate norms and a uniform regulatory framework is becoming a priority for all actors involved.

Embracing new technologies

Notwithstanding such concerns, banks in the Middle East have made promising advances in terms of integrating technology solutions into their offerings. Some 47 per cent of bank respondents in the region would class their implementation of technology solutions as “mature” – on par with the global average – while an additional 35 per cent indicated this was on the agenda for the next one – two years. The survey also revealed that 59 per cent of respondents in the Middle East believe in the potential for digital channels to impact sales volumes.

Meanwhile, some 44 per cent of respondents in the Middle East noted that the development and deployment of digital trade and online trade platforms is a strategic priority in the next one – three years. What’s more, half of bank respondents based in the region also expect emerging technologies, such as distributed ledgers, to become an important focus for the industry in the next three – five years.

As such, only 6 per cent of bank respondents in the Middle East believe that traditional trade finance processes, such as the use of documentary letters of credit, will remain a priority in the next three – five years. In its place, focus will gradually shift towards the development and deployment of innovative and digital trade finance offerings. The ultimate aim of such a move being to increase efficiency, decrease costs and unlock greater market capacity.

New financing methods

This will particularly benefit smaller traders and companies, who often face the highest rejection rates due to burdensome prerequisites – such as collateral checks and credit history requirements.  Indeed, almost 40 per cent of trade finance requests from such clients received by banks in the Middle East were rejected in 2017.

This same split can be seen on a global scale, further demonstrating that the “trade finance gap” between the demand and supply of trade finance – which is currently worth an estimated US$1.5 trillion according to figures from the Asian Development Bank – represents an industry-wide issue, indiscriminate of sector or locality. With the digitalisation of the sector, however, corporates will no longer be solely reliant on banks for their trade financing needs.

As the industry faces one of its biggest overhauls to date, the move towards paperless trade is unlikely to be without complications. However, the move towards digital trade finance will revolutionize the sector – and it will be for the better. Over 40 per cent of banks in the Middle East are planning the implementation of technology solutions into their trade finance offerings, while over 60 per cent of respondents in the region anticipate revenue growth from SCF in the next three years.

Banks in the Middle East are well on their way to paperless trade and, despite the obstacles yet to be tackled, have made significant progress towards the digitalisation of their offerings. What is now required is a concerted effort from all parties in the sector to develop and implement standardised rules and a common regulatory framework, to further encourage the adoption of paperless trade and enable the sector to flourish through the digitalisation of trade finance.

Download the full ICC Global Survey at http://www.iccwbo.org/global-survey-report
 

About the author

Oliver Paul is head of Policy at the ICC




Tags: ICC | Paperless | Middle East banks | Digitization |

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