Putting Technology to Work in

Trade Finance
Amit Jain, Bank of America Merrill Lynch - 17 Sep 2013

The 2008 financial crisis ushered in a boon for trade finance. When other forms of liquidity and
financing dried up, corporations worldwide turned to it as a critical short-term working capital tool.
In the ensuing years the availability of liquidity in the market has stabilised, but demand for trade
finance remains strong. At the same time, the world economy has become increasingly datadriven, with growing reliance on real-time information that is easily accessible and can be stored
and retrieved at the fraction of what it cost a few years ago. However, one area in business
transactions where technology developments have lagged against other areas is in trade finance.

or the most part, trade finance processes remain

manual and paper-intensive, causing delays,
inefficiencies and increased costs for companies. But these problems have been noted and the tide
is turning. Recently, weve seen a tremendous push to
put technology to use in trade finance wherever possible by speeding up transactions, removing inefficiencies and reducing costs by introducing new solutions,
standardising formats and consolidating information.
Moreover, technology is being applied to provide realtime status updates on each step of the trade finance
process to all participants in the trade transaction.

Another challenge for banks is responding to regional

niches and market practices, which are taking precedence over the implementation of global products.
Furthermore, the adoption of specialised niche products and alternative technologies by some providers
is putting pressure on banks to either join or risk losing
share of wallet to competitors that have adopted the
solution. For example, multibank proprietary platforms
have their own set of rules, and banks must adhere to
these rules to become a member and participate in
transactions with corporate members of these specialised, closed-loop networks.

Challenges Faced by Banks

As trade flows become increasingly global, banks are
finding an even greater need for processing speed
and efficiency. At the same time, they face a lack of
standards when attempting to communicate with their
corporate clients, whether through proprietary bank
channels, spreadsheets or host-to-host connections.

New instruments, such as the Bank Payment Obligation (BPO), also create both challenges and opportunities for banks, most notably, the decision to invest
and build the capability or wait for client adoption.
The BPO is a response to the increased usage of
open account trade and the risk it poses to sellers.
The BPO represents an irrevocable undertaking given
by an obligor bank (usually the buyers bank) to a recipient bank (usually the sellers bank) to pay a specified amount on an agreed date, provided a number of
predetermined conditions have been fully satisfied by
the electronic matching of data according to uniform
rules established by the International Chamber of
Commerce (ICC). The BPO aims to protect sellers in
open account transactions similar to the way letters of
credit (LC) mitigate risk in traditional trade, by transferring buyer risk to an obligor bank.

Currently, some banks work with tens or even hundreds of multinational corporations (MNCs), each with
their own back-office enterprise resource planning
(ERP) system. The challenge for banks is to convert
all of the data from those client systems into a standard format they can take in, and then later send out
reports in formats their clients systems can read. Addressing this formatting challenge entails a significant
investment in process and technology.

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The speed and magnitude of BPO market adoption

remains to be seen; around 50 banks have confirmed
that they will adopt BPO to the corporate market,
although only a few of them are live and piloting
the instrument. Banks that eventually choose to offer BPO-based payment assurance and financing
services will need to make significant investments in
systems enhancements to accommodate the instruments 100% electronic process.
Challenges Faced by Corporations
Since the global financial crisis, successful corporations have continuously reassessed their processes
to find ways to free up cash and reduce their
financing needs. Unfortunately, many companies
are constrained by lack of automation, poor visibility
of cash, transaction uncertainty and inefficient,
paper-intensive processes. A big obstacle has
been a lack of system standardisation and integration. Companies have trouble sharing data between
internal systems - such as payables, receivables and
other ERP systems - as well as communicating with
their banks. If a company works with multiple banks,
those problems are compounded as each bank
typically has its own formatting requirements and
proprietary platforms.
With multiple bank platforms to access, its difficult for
companies to secure a single view of all their transactions. Trade finance is a sticky business, requiring
integration between the systems of the corporate and
its bank. Jettisoning the relationship after all that time
and effort isnt usually an attractive option. In response, a few large corporates with several banking
partners are looking at ways to replace or consolidate
multiple bank trade portals with a single multi-bank
platform to improve visibility and achieve greater
control over their trade finance transactions.
Another impediment faced by companies quest for
paper-to-electronic conversion and automation has
been the inability to produce and exchange all of
their trade documents electronically, especially the
transport document - the bill of lading (B/L). To
further complicate matters, the B/L is also used as
a title document in trade finance. Several solution
providers now have partnered with major shipping
lines to create electronic bills of lading (eBLs) and
present them electronically in data form similar to
other electronic documents. In addition, there are
closed member groups where buyers, sellers, banks,

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and forwarders can participate within their own legal

framework to electronically transfer the title on the
shipping document from one party to another. This
practice is gaining strong adoption globally. Given
that the BPO is also based on exchange of data,
eBLs can play a significant role in automating BPO
transactions in the future.
Looking Ahead
Many of these technological challenges will be
addressed as new products gain momentum and
acceptance. Now that it has been endorsed by the
ICC and has its own set of rules similar to those
governing LCs, the BPO is expected to gain momentum and expand its user base in the next few years.
The upsurge in BPO activity will help drive another
trend: growing corporate-to-bank SWIFT use. While
more than a quarter of global MNCs now use SWIFT
to communicate with their banks for treasury and
bank account maintenance, and the number of banks
that offer SWIFT channels to their corporate clients
is growing rapidly, corporate adoption of SWIFT for
trade is negligible. With the BPO requiring corporations to communicate with their banks electronically,
look for the SWIFT channel to be used more for trade
finance activity by corporates.
These innovations provide an opportunity for companies to automate current paper-intensive, manual
trade finance processes. Such automation can
reduce costs, remove redundancy and cut processing times. In addition, it can provide corporates with
better visibility and certainty around cash flow associated with their trade transactions.
Mobile trade platforms to date have been in the very
nascent stage and offered by only a select few banks
with very limited capability; however market adoption
is changing rapidly. With the adoption of smartphones
and tablets taking off in the past few years and companies increasingly allowing their workforce to access
third party applications and external websites from
these devices, banks are gearing up efforts to either
provide mobile platforms or trade applications with
a host of functions, enabling todays mobile professionals to authorise or amend transactions, access
records and check transaction status while on the
go. As mobile trade becomes a price of entry, banks
must define strategies such as developing devicespecific, downloadable applications, optimised web
capability, or both.

Staying Competitive in Trade Finance

Trade finance is changing at a rapid pace, with the
emergence of a range of technology offerings. Companies will need to be strategic and select the right
solution that will serve them over coming years. Trade
lanes are continuously changing and more transactions are moving away from LCs to open account and
BPO. Banks will need to differentiate themselves by
offering robust solutions backed by sustained innovation and significant, ongoing investments in technological solutions. These solutions must be flexible,
scalable, easy to integrate and nimble enough to
change and adapt to local market needs.

Amit Jain
Vice President, Product Manager Global Trade & Supply Chain, Bank of America Merrill Lynch
Amit Jain joined Bank of America Merrill Lynch in 2006 and is currently managing both traditional
trade finance and supply chain finance offerings across both corporate and financial institution
client segments globally. In this role, he is responsible for driving product strategy based on
emerging clients needs and evolving market trends, as well as for development and rollout of
the banks new trade and supply chain products, working closely with cross functional teams.
Additionally, he is responsible for supporting global sales teams in marketing the trade and
supply chain product suite, structuring complex transactions, and providing ongoing training to
sales, credit and other support teams.
Prior to joining BofA Merrill, Amit worked with JPMorgan Chase and ICICI Bank in Asia in various
trade finance roles including operations, sales and product management. Jain received his
MBA from University of Southern California and also has a Master of Commerce, majoring in
Banking and Finance from University of Mumbai. He is a Certified Treasury Professional (CTP)
and an active member on various trade and supply chain finance committees at BAFT-IFSA.

Through offices in 30 countries, Bank of Americas Global Corporate and Investment Banking
group provides investment banking, trade finance, treasury management, capital markets,
leasing and financial advisory services to domestic and international corporations, financial
institutions and government entities. Bank of America has been in Asia for more than 50 years
and has more than 2,000 employees based in 12 countries throughout the Asia-Pacffic region.

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AA-AE-0145ED 10-2013