As international trade moves on to the web, business-to-business (B2B) portals and their members are looking for ways to keep the whole transaction process online; inevitably this requires a streamlining of existing processes and elimination of paper.
Trade finance products and the commercial documents of trade, which have in many cases remained unchanged for over 100 years and rely heavily on processing paper documents, are being examined closely.
But at the same time, electronic trading communities do not want to throw the baby out with the bath water. For trade to happen successfully, buyer and seller must be able to identify each other accurately, they must agree a contract, the seller must be confident of receiving payment and the buyer must be confident of receiving the goods he has ordered.
If they have met over the internet, the buyer and seller may well not know each other well. They will therefore continue to look for assurance from third parties, whether they are inspection companies, rating agencies, insurance companies or banks. But how are banks, who are often inclined to see trade as a paper processing business, responding to the new challenge of maintaining their involvement as guarantor and trusted third party, while overhauling their business model to enable it to fit into the internet world?
Where The Banks Are Today
Until recently, banks have been using technology to automate paper flows, rather than eliminate paper entirely. In this respect, many banks have invested heavily in intermediate solutions, such as imaging and outsourcing.
Imaging involves scanning documents so that they can be checked at a remote location. This allows banks to centralize their document processing, and can also enable workflow to be processed more efficiently.
However, this technology is primarily designed to benefit the bank rather than the customer. The customer often suffers, as their local trade services teams are transferred to a remote location, or even out of the country, being replaced by a 'mailing' or "scanning" service. The exporter is therefore unable to discuss the status of his documents with his bank and document amendments take far longer to process.
Another way to automate the flow of paper is to outsource document preparation to banks. Clients can send electronic copies of their documents to their trade services offices, which prepare them for dispatch. Errors are reduced, since trade services staff, who are trained in identifying document discrepancies, can prepare and amend documents quickly. The main drawback with this process, however, is that the bank cannot prepare documents like bills of lading or certificates of origin.
Alternatively, banks are able to provide customers with software to enable them to prepare their own documents more easily. To speed up collection transactions customers can now forward documents to the collecting bank directly. A copy of the collection schedule can be sent to the exporter's own bank, which can then monitor the transaction and chase up for payment if necessary. These so-called "direct collection systems" improve the exporter's cash flow, by allowing documents to be paid or accepted more quickly.
The customer also maintains tighter control over the process but without losing the benefit of his own bank chasing payment and providing transaction management information. Direct collection systems are very easy to install, as they are based on word processor templates that offer many benefits, including easy customization and built-in error checking.
All of the above are designed to simplify and improve existing paper-based trade practices, but they do not eliminate paper and, though part of the transaction may be done over the web, couriers must still do transfer of documents.
It is no surprise, therefore, that banks now focus on ways to eliminate paper from the trade cycle altogether, ensuring that outsourcing and direct collection will be abandoned gradually, while imaging will only be retained as a means to automate the archiving and retrieval of paper documents.
Electronic Data Interchange (EDI) And The Internet
Three major barriers to the wider adoption of electronic processing have been the absence of agreed message standards, a public communications network and legal recognition of digital contracts.
Electronic Data Interchange attempted to overcome the first of these barriers by creating internationally agreed message standards (ANSI or UNEDIFACT). Participants in the supply chain can extract data from their back office systems and convert this into an agreed message standard automatically. By eliminating re-keying timing delays, errors are eliminated; stock control and other accounting systems can be updated automatically.
But EDI has been slow to catch on as a popular transmission medium. It has been costly to implement and run. It uses complicated messaging standards and for security reasons message transmission has been restricted to private data networks (VANS). While many EDI providers and networks offer a mailbox service, they may not have the global coverage sufficient to implement and support an international client base.
For small companies, the cost of EDI systems has been excessive, and for exporters who trade with a variety of importers, each importer may require a different EDI standard. The advent of the internet is changing this. By providing a common and cost-effective global communication channel, the internet allows any computer or network to connect to it. The internet facilitates interoperability between different platforms and is encouraging the development of simpler XML message standards.
Sophisticated EDI users can now export messages in an EDI standard in the same way they have done for a number of years, but, rather than requiring that the recipient be EDI enabled, they can now post the messages on a secure website as an HTML page.
Problems of security, identity, and whether something is legally enforceable are now being overcome. Most governments are passing e-commerce enabling legislation that allows for the enforceability of electronic documents. Users can transact safe in the knowledge that parties cannot deny that they sent or received messages.
Certification authorities such as Identrus, which is owned by the world's largest banks, enable digital identities to be determined with certainty and data to be transmitted without possibility of interception or corruption. These systems provide the global openness of the internet with more security than is present in the paper-based world.
With these difficulties removed, companies such as Bolero, which had originally developed PC-based trading platforms, but have now moved them to the web, can provide essential infrastructure to global trade by offering participating users the opportunity to process trade documentation more efficiently.
Bolero, jointly owned by SWIFT and the Through Transport Club, has established a title registry and a rulebook to document and govern the electronic transfer of all documents of title. Until now, the absence of a legal framework for title documents has blocked the full adoption of e-commerce in international trade.
The Future
The tools necessary for widespread internet-based trade are now in place. As buyers and sellers migrate from traditional communication channels to the web, transaction volumes will grow exponentially. Service providers who make transactions easy for traders, by integrating all supply chain participants to provide easy transaction processing and comprehensive real-time reporting, will succeed.
In a similar way to the big airline alliances, software companies, B2B sites, insurance companies, transport and logistic providers and banks are increasingly working together to provide a one-stop shop for each other's customers. They will cross-sell to one another's customers, eliminate the need for customers to duplicate the input of information, enhance reporting, and share revenue.
Buyers and sellers will reap dual benefits from less paper and improved information; getting there will not be easy. All participants will need to invest in new software, staff will need to be retrained and dual paper and paperless systems will need to be run concurrently. The costs will initially outweigh the benefits, but by the end of the decade international trade will be easier than it ever has been.
Keith Bradley is manager, business development, and Stephen Bell is manager, business solutions, from HSBC Trade Services.
