Embedded Trade Finance

Following my most recent post on Trade Consulting as a Service, I would like to update you on the progress we have made so far.  The purpose of our Trade Digitalisation Consulting Practice is not only to offer consultancy services to the Trade Industry but also to design, set-up and run projects and new ventures in the digital space that benefit the industry as a whole. One of the new ventures we are focusing on is…

Digital Trade as a Service (DTaaS) with an initial focus on Embedded Trade Finance for Corporates, Logistics and Financial Service Providers

Vision

Our vision is simple: to take account of lessons learned by the trade industry over recent years to radically transform the Documentary Trade Business of Risk Mitigation, Financing and Payments by making the eco-system less fragmented and more interconnected.

The Problem

While trade digitisation solutions have proven to add value at limited volumes, they are stalling in their scaling journey in part due to scarcity of much needed eco-system wide digitisation capabilities across the logistics, financial services and business landscape. This lack of connectivity across the financial supply chain and the physical supply chain has limited the reduction of paper – which today still very much drives the cost and operational complexity in trade – and created digital silos of data.

The Solution – Short term starting point

Our approach is to bridge this gap by embedding trade finance services into the leading physical supply chain solutions. For many corporates, their first engagement is with their Logistics Service Provider (LSP) to move their goods from point A to point B and it makes sense to leverage those relationships for the Embedded Trade Finance approach. When combined with existing networks for digital documentary trade solutions, such as Contour, there is a new opportunity to drive widescale adoption of both existing digital trade finance solutions and to build the foundation for new digitally native and URDTT compliant trade finance offerings.

Existing documentary trade finance relies on data trapped in paper documents, but by connecting to LSP’s, the industry can speed up the progress to digitize transaction data directly from the physical supply chain. This data can be used to create trustworthy and transferrable digital assets such as a digital Buyer Payment Undertaking (BPU) that can be taken up by a Financial Services Provider (FSP) or a network of FSP’s.

Furthermore, this approach and flow will reduce back-office processes and human resource requirements (minimise or eliminate manual document handling and checking) for both Corporates and FSP’s and with the embedded proof of performance reduce compliance and risk exposures for FSP’s and make fraud extremely difficult to perpetrate

The Solution – Medium term expansion

Our amibition does not stop here. We are challenging ourselves and the industry to collaboratively engage with each other and leverage the data pools created by the new technologies and connectivities to design and deploy new end-to-end digital solutions.

Our vision is that the industry can use these new products and integrations to launch a “Service Hub” which will ultimately be able to accept and take up any Buyer Payment Obligation created by any other Trade or B2B network in the industry and connect them into flows for the creation, funding and transferring of a FSP Payment Undertaking (FSP-PU), e.g. make them transferable and negotiable instruments governed by a Rulebook that aligns with the URDTT.

This DTaaS concept will also open the doors for a more active trading of these BPUs and the FSP-PU’s and allow to connect to a broader investor base and reducing the global trade finance gap that continues to grow

Our Approach

Our plan is to work pro-actively with Corporates, LSP’s, FSP’s, Trade Service Providers, FinTechs and Network partners. We are starting with Contour, who are leading the digitisation of the traditional trade space and provide an industry-backed foundation to further transform the traditional paper-based products to create end-to-end digital trade solutions for Risk Mitigation, Financing and Payments. We have already mapped high-level flows, created detailed value propositions for all parties involved and have composed a comprehensive corporate client survey to gain further insights into which digital services corporates need and will ultimately sign up for.

We are now at the stage where we would like to obtain industry-wide feedback in order to finetune the design mechanics and functionalities before we are embark further on our journey.

Therefore, we are inviting interested parties to participate and join our new cross-industry Advisory Board to work with us on this exciting evolution of the trade industry. We are a group of experienced Trade Industry Experts who believe in the end-to-end digitalisation of the Trade Industry and have acquired an incredible amount of expertise over the years working on various industry ventures. Our Advisory Board is covering a broad range of experience and skill sets with representatives from Trade Product, Technology, Legal, Technical, Partnership, Network, Third Party Services and FinTech domains. Foremost, we are looking for additional representatives from the Logistics and Corporate sectors to help us to put our vision into practice and help us design and build sustainable and successful solutions.

As some of us will be in the same physical location in Amsterdam attending the SIBOS conference, we will come together for two informal lunches on Tuesday, October 11 and on Thursday, October 13, 2022. Please let us know via email if you would like to attend any of the two lunches to discuss with like-minded people the proposed vision and approach. Venues and timing will be communicated separately to the interested parties.

If you like our approach and want to find out more or you want to actively participate in this new industry initiative, please contact:

Daniel Cotti at dcotti@cttpartnership.com

We will provide regular updates on our progress.