Digitalising trade: why it’s time for governments and regulators to switch on

If UK law is amended to allow for electronic bills of lading, bills of exchange and promissory notes, then UK trade could increase by 25%, and 3 million jobs could be created (ICC 2021). International business activity would increase by around 13%, and trade finance as a sector could become 35% more efficient.[1]

These are big claims but think about this: it costs about £60,000 to onboard an SME for trade finance; in 2019, for every transaction, the documentation cost alone could be said to have been around £57,000. In simple terms, this documentation is all about the proof that a business has shipped the required volume of goods to a given buyer at a specific price. These documents become financial instruments in their own right to improve working capital while the goods are in transit.

There is no reason why this process cannot be done digitally. Still, even though there is now the technology available to do this securely, some  80% of the processing of these types of documents is manual – hence why the costs are so high and why, if these costs can be brought down, then there is potentially such a significant proportionate impact on the UK export base.

It's not just about reducing costs, improving efficiency or, indeed, reducing the scope for fraud in the documentation. There is no better moment to seize hold of the trade agenda for the UK as a whole. Banks recognise this. They know that the SME sector has been struggling since the last financial crisis with the increase in documentation to comply with the regulations, rules and capital requirements that have been introduced to ensure the systemic security of the financial system since then. During Covid, access to finance for SMEs worsened because many of the big insurers stopped insuring riskier trade finance deals which, almost by definition, many SME deals are, simply because they are small. Post-Covid and post-Brexit, there is no sign that the regulations are getting any more straightforward, and fraud and sustainability checks will only become more arduous over time as regulators seek to manage risks within the financial system.

Yet the financial system can help these small businesses if the costs are reduced. According to the survey conducted as part of the ICC / Coriolis Technologies research, digitising these documents was estimated to reduce the number of days involved in a transaction by around 75%. This would enable banks to finance SMEs on a much more efficient and lower cost basis.

There is around £72bn of trade finance intermediated through banks annually in the UK alone. SMEs account for about £2.3bn of this. Our research found that reforming the law to enable digital documents would create an additional £1bn of trade finance annually, or over 40% more trade finance to this sector.

The business case speaks for itself, and the issue is whether or not governments and regulators are ready to step up to the plate.