SINGAPORE: The US$9 trillion business of financing global trade needs to go digital, according to southeast Asia’s second-biggest lender.
In the high-tech world of financial markets, the continued use of paper receipts in trade finance looks arcane. While some processes are already being digitalised and banks and commodity traders are experimenting with blockchain technology, paper documentation remains widespread and the risk of fraud elevated.
Simon Collins, the co-founder of online trading platform TradeCloud Services Pte describes the documents used in commodities trading as “paper bridges” that link together disconnected systems in the trading process. Some of the biggest lenders are also teaming up with commodity traders to improve efficiency and security through technology. In September, trading giants Mercuria Energy Group Ltd and Gunvor Group joined forces with Royal Dutch Shell Plc and a slew of banks to create Komgo SA, a trade-finance venture that’s developing a digital ledger-based system to track transactions using blockchain technology.
In addition to preventing fraud, technology creates a “tighter” payment system, said Ng. “If payment becomes so short, the financing cycle may be shorter,” she said, adding that she would then question the relevance of letters of credit, a document issued by one bank to another to serve as guarantee for payments.