Trade Finance
Published  12 MIN READ

Much Ado About Something

Digitalisation’s Positive Impact on Trade

Rumours about the death of paper documentation in global trade are much exaggerated. But has the digital alternative really made as much headway as is sometimes suggested? Societe Generale’s Christian Cazenove, Group Head of Trade Oversight & Advocacy; Charline Profillet, Deputy Head, Structured Trade Finance; and Pierre Courquin, Director, Head of Forfaiting, provide TMI with essential insight. 

In 2017, the United Nations Commission on International Trade Law (UNCITRAL) introduced its Model Law on Electronic Transferable Records (MLETR). By giving digital trade documentation the same legal value as its paper counterpart, it surely would pave the way for much easier, cheaper, and quicker processes for all. Yet, seven years on, paper still rules. But with recent adoptions of MLETR in the UK and Singapore, and France on the verge of ratifying, is digitalisation finally now on the brink of something significant?

According to the International Chamber of Commerce (ICC), approximately four billion paper documents annually are shuffled around the global trade finance ecosystem. Each trade transaction accounts for an average of 30 original documents and more than 200 copies. There is no doubt that the trade edifice is still largely built upon paper. However, for it to function, it relies on complex processes that must be aligned, and paper shuffling makes that difficult, not least when it comes to finance.

One of trade finance’s key components is the documentary credit or letter of credit, known as the LC. Its primary purpose is to mitigate risk. And yet, somewhat ironically, LCs are commonly subject to the manual processing of multiple pieces of paper. What’s more, LCs are bound by several hundred rules, the treatment of which demands a huge amount of experience, not only in application but also in compliance checking, which takes an average of two hours per single transaction.