Whilst the previous part considered some of the difficulties that have dogged documentary trade finance, Part II looks to the future. Given the technological advances that have occurred since the advent of the documentary letter of credit, the former is increasingly threatening to eclipse the latter.
In a sector where ease, speed and cost-effectiveness are prized, it is unsurprising that technological solutions to perennial trade finance problems are attracting renewed interest.
That said, attempts to digitize trade finance are not novel. Over the years, there have been numerous (usually unsuccessful) initiatives in this direction. Most notable is the International Chamber of Commerce’s attempt to update the UCP regime with the e-UCP, which has simply not gained the traction that many had expected. The reasons why the achievements have never really matched the desire in the trade finance sector are threefold. First, it is simply not possible to digitize trade finance until trade documents, namely bills of lading, bills of exchange and cargo insurance documents, can be created, transferred and stored electronically. Without this step, any solution will still involve moving bundles of paper around the world. Secondly, the trade finance community will simply not move towards the digitization of trade documents until there is an effective legal framework guaranteeing that electronic data are as reliable as, and equivalent to, paperbased documents. In this regard, digitization will not happen until the legal framework can provide enough assurance to a sufficiently large portion of the trade finance sector. Thirdly, there seems little point spending the time and effort developing a legal framework until there is a technological framework capable of dealing with the requirements for digital trade. Technological know-how appears to have reached that point. These three concerns are addressed in Part II and, although there remains scope for healthy scepticism about the ability of technology to transform trade finance overnight, there are a series of more modest market-based, legal and technological developments that incrementally and cumulatively may take trade finance into its digital future.
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