The effects of the Covid-19 pandemic continue to severely disrupt trade. Yet some trade finance banks had the foresight to plan for such an eventuality, utilizing capabilities that overcome market-wide limits on documentary trade. As appetite for trade digitalisation grows, Conpend’s CEO, Torben Sauer, explains how banks are turning into technology to
automate their document checking using AI – eradicating logistical challenges following a surge in remote working caused by the pandemic, and streamlining paper-based processes and transforming operational efficiency
Over the last two years, financial institutions (FIs) have experienced unparalleled disruption as the Covid-19 pandemic continues to impact regions across the world. What they have not experienced, however, is a major decline in functionality. While the crisis initially sent shockwaves through the financial markets in March 2020, the operations of most of the world’s major banks converted to home working without a single day’s loss in service. In fact, customers barely noticed the fact that bank buildings had emptied and that – in many cases – the entire workforce had been asked to work from home. Many are continuing to operate in this way, or a hybrid model.
While much of the credit for this gargantuan effort to provide seamless normality should go to the technicians and operatives directly involved, the digital journey that many FIs had embarked upon upon the preceding years also deserves recognition. If the pandemic had hit in March 2010, rather than 2020, it would have been an entirely different story.
That’s until you focus on trade. Trade finance – or more accurately documentary trade finance (supported by bank-issued letters of credit or similar instruments) – continues to be a mixed picture with respect to digitalisation. Much of it remains stubbornly paper-based, not least due to supply chains often originating in developing countries with limited access to digital infrastructure.
Yet global trade volumes in 2020 defied initial forecasts that predicted a potential 20%-plus decline, instead falling by 5.3%, which obviously includes a strong mid-year recovery after a near-catastrophic decline in March and April. This recovery continued into 2021, with the WTO predicting global merchandise trade volume growth of 10.8% – up from the 8% originally forecast in March. Moreover, the value of world imports and exports of goods reached US$5.6 trillion in Q3 2021, setting a new quarterly record. So, what has saved trade?
Documentary checking remains paper-based
Documentary trade, traditionally reliant on a courier system for the required documentary processing, has certainly been disrupted by the pandemic. Documentary checking, which is a critical part of the process – not only facilitating the movement of goods but also releasing financing and (importantly) ensuring compliance against concerns involving sanctions, money-laundering and fraud – remains largely reliant on humans operating in “service centers” ”, carrying out manual processes. These centers were forced to close or, at the very least, to severely reduce their physical (ie on-site) capacity. Furthermore, many of these service centers are in countries such as India and the Philippines. With limited resources and vulnerable health services, these countries experienced some of the severest lockdowns.
Yet many FIs were able to continue to operate, thanks in large part to robust business continuity plans put in place to protect their operations against such disruptions. Events going back to the IRA bombs in London in the 1990s and the tragedy of 9/11 had stoked the fears of banks with respect to catastrophic business-interruption events. And while this led many to develop secondary or offsite operational and/or data centres, these would still be impacted by a global event such as a pandemic.
Global disruptions required a different level of thinking – not least with respect to the challenge of operating paper-based trade-documentary checking service centers alongside work from home orders. While largely digitalised banking functions such as payments or capital markets trading could be overcome by remote working, what about the need to physically process and read paper couriered to service centers while working remotely?
How technology and digitalisation is saving trade
The banks that have been able to continue uninterrupted had already taken the leap towards the automation of documentary checking – harnessing artificial intelligence (AI) or machine learning software. Here, labor-intensive service centers were employing the technologies to undertake the original checking of all documentation. In turn, this allows operatives to focus on the anomalies spotted by the automated check, rather than having to read the entirety of the physical documents.
Regardless of where operatives are working, banks utilizing AI capabilities can centralize the courier system for all trade documents before scanning them into the system to make them machine readable. The software then automatically checks these documents for compliance with ICC rules (UCP600 etc) – which are programmed into the AI solution and can be updated accordingly – as well as other agency requirements, such as those of BAFT, ITFA and OFAC. The technology then self-learns over time from the anomalies spotted and resolved – steadily increasing the efficiency of the process.
Of course, the need for human intervention has not gone away, and this remains important for resolving the discrepancies thrown-up by such solutions. But operatives are spared the monotony of reading every word of every document, which is a huge efficiency gain. And, crucially with respect to the pandemic, they are screen based, which means they can work remotely.
These machine-learning AI solutions for trade documentary checking, such as our TRADE AI app, have therefore become a critical part of continuity planning – and indeed execution – against business interruption risk. Hence, should remote and hybrid working be here to stay, this means no loss of efficiency. Indeed, the efficiency gains from the adoption of such technology in the new era of working are clear to see.
Quietly, such apps and technology solutions may have saved world trade from a far more catastrophic disruption that many – including the WTO – had predicted.