Digitalization of trade financing can boost supply chain visibility, resilience and also help in ESG and compliance in future global crises

With the COVID-19 pandemic exposing the fragility of supply chains, businesses are turning to emerging technology to cope with and mitigate the risks, build resilience and simplify the sophisticated world of cross-border trade.

According to a KPMG article, countries in the Asia Pacific region are facing supply chain bottlenecks; regulator actions; component and material shortages; rising freight costs; infrastructure challenges and opaqueness in cross-border trade financing and customs arrangements.

These obstacles have put additional strain on economies and hampered the distribution of goods and information to both businesses and consumers alike.

According to a report from the United Nation’s Economic and Social Commission for Asia and the Pacific (UNESCAP), transparency has been the key challenge within the APAC region, with 81.7% of Trade Facilitation Agreements aimed at helping to improve visibility of supply chains. Despite these improvements, businesses still need a viable solution to leverage this transparency and streamlined processes to accelerate their own digitization journey. 

Tapping into Blockchain and DLT trading ecosystems

Organizations and businesses are currently coping with the global situation by actively investing in diversifying suppliers; adding resilience to face future disruptions, and making the supply chain more adaptable.  New technologies, especially blockchain, are being used to innovate ingenious solutions to enforce rules-based operations that are more predictable and stable.

AI, smart contracts and distributed ledger technologies are also charting the path forward in the digital trade ecosystem of tomorrow. The emergence of new digital ecosystems in recent years has enabled better cross-border and cross-industry collaboration by connecting business entities within the global trade finance network, while ensuring unfettered access to real-time information between stakeholders. For such digital trade ecosystems:

    • Smart contracts have enabled multi-party transactions, and empowered businesses to access liquidity across the ocean without the need for domestic subsidiaries.
    • Distributed ledger technology has enabled stakeholders to track and control the flow of transactions, to access all the necessary information in a single digital document; updated in real-time and viewable by all network participants instantly. This has fueled a greater volume of trade, as businesses are empowered to seek cross border financing, while enjoying lower counterparty risks as everyone on the network is known by the financer.
    • For businesses focusing on sustainability, a digital trade ecosystem allows for easier statutory and operational audit compliance. With all information collected and validated on the blockchain across multiple geographies, businesses can extract the Environmental, Social, and Governance data into a single unified framework, and fully manage the compliance process without manual efforts needed for ESG scoring, profiling and forensics on an ongoing basis.

Since the blockchain is immutable, and the data is tamper-proof, such digital trade ecosystems lend credibility and confidence to the business to advance their corporate sustainability agenda.  

Emerging stronger from the disruptions

When businesses can automate their supply chain processes with a digital ecosystem, their effort to optimize trade finance will be significantly more efficient, especially in times of crisis and uncertainty.

With the help of AI and blockchain technologies, financial institutions can also experience a boost in productivity and efficiency, and be advocates for a digital future while each industry gradually transforms and adopts new standards. 

Businesses in such ecosystems will be able to breathe easier with the lesser administrative requirements and improved risk management associated with cross border trade.

As more adopters jump on the bandwagon, trade financing can only become bigger, and businesses as well as financial institutions will be better positioned to take advantages of new opportunities arising from digital economics.