Trading goods or trade finance in the international market is one of the most difficult procedures in enterprise finance. According to a report issued by Maersk, around 200 documents are exchanged among global trade entities ie. importers & exporters regularly including payments, letters of credit, foreign exchange, shipping documents ie. bills of lading, and various import/export documents, etc. For a successful transaction, all these documents are required to be approved by multiple parties including suppliers, manufacturers, customers, distributors, and various government agencies, etc. Apart from this, the process of obtaining any type of credit for a potential trading partner is also quite complex, time-consuming as well as generally conducted manually. And this is the reason behind the popularity of risk-mitigating trade finance products such as Letters of Credit.
Additionally, it is estimated by the International Chamber of Commerce (ICC) that over 4 million pages of documents are transmitted in documentary trade. As a result, a big portion of importers & exporters is dependent on financial intermediaries to mitigate their risk exposure. Moreover, the increasing cost of providing trade finance, combined with a high-level scrutiny process is affecting the trade finance growth possibilities of banks.
As per one of the financial experts Ngulminthang Lhanghal, to resolve these trade finance-related issues, the trade finance providers like banks or private FIs should reconsider the way they manage their manual compliance processes and current detection measures. Here technology plays a vital role. The accelerated automation processes, along with artificial intelligence (AI) and machine learning (ML) can significantly help trade finance reducing the overall operational costs and improved customer experience.
How Digital Technology Can Boost/Contribute Trade Finance Processes?
The digitization technologies such as AI and ML along with their analogs, natural language processing, and chatbots are effective & helpful in revolutionizing the processes where there is a possibility of human errors or the involvement of complicated, well-defined tasks that require keen attention to detail. Humans can get bored or errors can be made. AI is capable of executing the task much faster than humans.
- With the help of natural language interfaces, the recommendations can be directly communicated to the manager handling the whole task.
- The ad hoc questions can be asked and there could be answers based on the available information.
- While on the other hand, predictive analytics can help in a plan for particular issues and opportunities in the market.
- AI is very helpful in understanding the trading party’s concerns by recognizing patterns in orders, and better-predicting demand.
- AI can also automate the trading document processes and makes sure that the correct online forms are being received by the correct parties at the correct time in the trading processes.
- Moreover, Natural Language Processing (NLP) is capable of understanding both spoken and printed documents, translating & filling them out as well as forward them to the decided parties in the supply chain in the language of the recipient.
Additionally, AI and blockchain can also be incorporated to boost transaction security by using smart contracts. The application of AI and ML is changing the way global trade parties operate businesses. Today various companies have started offering products allowing the efficient automation of trade finance document processing. For example, HSBC and IBM have developed a solution consisting of IBM robotics technology to analyze and digitize documents.
