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07 December 2023

CGI: Green light on trade digitisation, how banks can avoid stalling

Head of Trade, Treasury and Risk
Recent legislative developments on trade digitisation in the UK and long-awaited API standards for guarantees and standby LCs from SWIFT and ICC, have given banks the green light on the next generation of trade digitisation. But will banks take up the opportunities? Patrick DeVilbiss, Senior Offering Manager, Trade and Supply Chain Solutions, and Colin Zeglen, Product Manager for Trade and Supply Chain Solutions, at CGI discuss.

“We’re at an interesting point in time with the buzz and enthusiasm resulting from the new UK Electronic Trade Documents Act,” says Patrick DeVilbiss, Head of Product, Trade and Supply Chain Solutions at CGI. “But that has to be juxtaposed against some of the failures of several platforms last year that were attempting to digitise trade, and the reality of current economic conditions.”

On the face of it, things look set fair for trade digitisation. The new UK Electronic Trade Documents Act (EDTA) entered into force on 20 September 2023, which gave certain electronic trade documents the same weight as their paper counterparts, and will provide impetus for legislative change elsewhere. 

“It’s great what is happening in the UK as English law underpins so much of global trade, and other countries can pick up on this development,” says Colin Zeglen, Product Manager for Trade and Supply Chain Solutions at CGI. In the US, progress on implementing changes to Uniform Commercial Code (UCC), heralded last year, has been a bit slow, but once New York State implements it, there should be cascade effects on digitisation in other US states. 

Meanwhile, in early August, ICC and SWIFT revealed long-awaited new standards for guarantee and standby letters of credit for application programming interfaces (APIs). The new standards are reported to align with SWIFT Message Type (MT) standards and future ISO 20022 compliance to minimise disruption to existing trade systems. This is important because it should help improve interoperability, allow for integration of banking capability into corporate treasury and ERP systems and allow integration of third-party platforms for guarantees and standby LCs. 

Gaps between promise and fulfilment

However, at a time when easier money no longer exists and the gap between promise and fulfilment of some platforms has been vast, progress on trade digitisation has been challenging, and many banks have been reluctant to make investments to take digitisation to the next level. 

“We have to ask, how do we move this from just being a conversation piece to being true implementation of products and services for corporate customers in the world of trade?” says DeVilbiss.

Reliable systems – but what is reliable?

The new UK legal framework is a helpful enabler. Nonetheless, the EDTA calls for the use of ‘reliable systems’. How should banks be interpreting reliability? “The notion of reliable systems is left up in the air, and it will be helpful to have some form of trade association/industry body accreditation in process to help define what that is,” says DeVilbiss. Banks are conservative by nature, and a market-based interpretation of what a reliable system looks like could help them adopt digitisation more rapidly. 

For sure, the industry is stepping up, and there are moves by the Centre for Digital Trade & Innovation (C4DTI) to establish accreditation of ‘reliable systems’ and a public register within a year of the EDTA being in place in conjunction with the ICC’s Digital Standards Initiative (DSI). 

There has been an assumption that, from a technology standpoint, systems could be based on blockchain technology as they can help track, control and give provenance to digital data in a reliable and secure way. Nonetheless, other solutions will likely be made available.

 “Whatever is implemented needs to be generally available and based on trusted and robust systems, dependable enough to scale to meet the needs of whatever volumes may come through the product,” says Zeglen. “The expectation is that ‘reliable systems’ should give banks a core technology component that allows them to understand what is happening with the underlying document and who controls it.”

Whatever banks choose needs to be something that works on a practical and fundamental level, as experience shows that theoretical uses can be constructed and then almost immediately encounter scalability issues. 

 Pathways to monetising trade digitisation

 It is all very well having the concepts in place, but without banks and financial services companies having a product or a set of products underlying something that they can sell to customers, progress will be limited. This has already been witnessed in countries that have moved to adopt the UN Model Law for Electronic Transferrable Records (MLETR). In short, there needs to be a route to making money. 

“You're not going to move the needle for corporates because they've been doing trade the same way for a long time, and they understand the products that are out there today. Banks have to create something that their customers care about. They have to market, package and deliver it to them in a way that is seamless, that doesn’t negatively impact their business and in a way that they can understand,” says DeVilbiss. 

Underpinning any technological solution, there needs to be an incentive – such as increasing transparency, reliability, speed and efficiency in processing, providing more revenue opportunities through deep-tier financing solutions along the supply chain, or making it cheaper because manual processes have been replaced, that gives corporates a reason to care. 

“There are a lot of opportunities, but I don’t think the industry has done a great job from a trade standpoint in packaging products that showcase this,” says DeVilbiss. “It is a question of how you take the concept and drive it forward for your corporate customers in a way that is meaningful to them because it will not succeed if it's just, ‘here's a new tech solution,’ or ‘here's a new network that we’re backing.’ 

 The API dimension – the imperative to modernise core systems

Whatever platforms emerge as reliable systems, and hopefully, as DeVilbiss says, there will be a multitude, they will need to be a link in the chain rather than something magic that solves for every portion of how banks interact with their customers, counterparties and their corporate customers. “To get full digitisation, you need to complete that chain, and from a bank standpoint, you should focus today on what is necessary in terms of modernisation of your existing platform in order to use any reliable system that is chosen.”

That means banks need to review how they already interact with customers at the front end and how their internal systems work from a back-end perspective, and how the two tie together. “Our view, and the market view, is that APIs will be the primary mechanism by which we will interact now and in the future,” says DeVilbiss. 

 The API way at CGI

APIs have the advantage of being relatively standardised, reliable, real-time and powerful. For example, CGI has retooled its entire back office to be API-enabled from the ground up. Now everything is API-based, and then on top of that there is a new API gateway that provides connectivity to external third-party channels. 

“If you imagine your product side, and what you need to create, it comes down to having a layer that interacts with your corporate customers in a seamless way so they can use, or create, whatever digital negotiable instrument on your front-end portal, or any multibank front-end portal, that communicates seamlessly to your back-end and then goes back to whatever reliable system is used to track provenance and understanding of who owns the underlying data. Bringing that all together is critical,” says DeVilbiss. 

How will the new SWIFT standardisation announcement assist with standardising APIs? “Standards are helpful as in the future, banks will not want to be building point-to-point solutions to interface with all different platforms, or we just risk creating digital islands,” says DeVilbiss. “What SWIFT and ICC have come out with is really interesting as it’s an industry standard in the API space, starting with standby LCs and guarantees, and we believe the intent is to broaden that in the future to commercial LCs and import and export flows.” 

Standardisation is essential to create an interaction mechanism that means creating individual point-to-point solutions will not be necessary, onboarding costs will fall and costs of doing business will come down. 

Standardisation vital, but platform modernisation has to happen

“API standards are crucial, but it all ties back to the fact banks have to modernise their platforms in general to be prepared for what's coming. If they are not doing that, they can talk about APIs and digitisation, but they are going to be stuck in the dark ages,” says DeVilbiss. “Banks should not think that any one of these ‘reliable systems’ is going to come out and solve everything. The reality of tomorrow is that it is interconnected and that it's multifaceted. They need to have platforms and systems that can talk to each other, and there won’t be one overarching solution.”

The work CGI has done in partnership with HSBC is a good example. “We’re thrilled that we've been able to deploy our solution for the world’s largest trade bank in a way that scales and can go across multiple geographies and continue to meet their needs,” says DeVilbiss. “It illustrates what banks need to do from a modernisation standpoint. Modernisation has allowed HSBC to build out their future trade services successfully and they are going to continue to be a market leader as a result, both in terms of being able to interact with third-party services and their corporate customers.”

How to prepare for the future and make it a reality

Trade remains critical for banks in tough times. We remain in a weird economic environment where next-generation digitisation may not seem immediately appealing for banks given the need to spend money in order to generate cost reductions. But banks need to update existing technology now to be ready for future end-to-end platforms and the next generation of trade. Indeed, taking on a little risk now can make banks leaders set for future success. 

“The world of tomorrow may seem far away, but it's almost at your doorstep,” concludes DeVilbiss. “Banks have to be prepared to modernise themselves, and that means considering taking a little risk as well. Look to your core engines, look to update yourself, look to modernise and have a strategy that says, ‘I'm going to be involved in a world that is hopefully more interoperable, but involves a lot of different participants in it. And I need to be able to connect to those participants.”


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