Combatting fraud in trade finance: the impact of digital solutions

From Trade Finance Global

For the past two decades, global trade digitalisation effectiveness rates have been stuck at 1-2%, an indication of the challenges associated with digitising such institutionally ingrained and paper-based processes at scale.

One of the key issues in this realm is how to digitise specific documents, such as the bill of lading. 

While the private sector has made many tremendous innovations, and has begun to piece together solutions, it alone cannot fully address this problem. To truly achieve scale, governments and lawmakers must do their part to ensure these documents are legally recognised. 

This is beginning to happen in various regions around the world, one example of which is the Electronic Trade Documents Bill in the UK.

To learn more about trade digitisation, Trade Finance Global (TFG) spoke with Oswald Kuyler, global head of strategy at MonetaGo.

The Electronic Trade Documents Bill

The UK introduced The Electronic Trade Documents Bill into parliament on 12 October, a major effort towards breaking the country’s legal reliance on paper for trade documents.

Kuyler said, “The work that the UK government is doing is going to be a major paradigm shift. Especially since English and Welsh law is fundamentally used for between 60% and 80% of trade documents globally.”

Banks, corporates and carriers will be able to review and leverage their existing template contracts based on English and Welsh Law as a foundation for digitising these documents without making any practical changes. 

The bill has been well-received by these communities and is expected to enable the scaling of digitisation efforts once it officially passes through the UK’s legislative process.

That said, it is still going to take some time after the legislation is passed before any tangible results begin to flow through. 

Kulyer believes that “It’s going to take probably about six to nine months before we actually start seeing some of the first announcements coming out about people actually leveraging it.”

It is likely to take longer to educate people on how to use it deeper into supply chains, however, every step in the digitisation process increases the speeds of progress towards the next step.

An enabled environment for fintech 

The past year has been a challenging one for fintech companies amidst an array of macroeconomic challenges and funding squeezes. 

According to Kulyer, there are two main buckets of fintechs: those creating solutions that can be used without legislative changes, and those whose solutions require legislative change to be implemented.

Kulyer said, “The fintechs who require the legislative change are trying to reinvent how we do trade finance so that we can really start solving this trade finance gap in new and exciting ways.”

However, these broader systemic changes take time to implement, and the industry no longer has the luxury to wait for such an enabling environment to exist before leveraging digital tools.

This is particularly the case in the realm of fraud prevention, where digital tools, like MonetaGo, have the potential to mitigate the ever increasing risk of fraud and trade finance duplication. 

Trade finance duplication, which occurs when multiple financial institutions finance the same trade transaction, results in significant losses for banks, with over £400 million lost in the UK alone. 

Kulyer said, “We’ve had a lot of requests from bankers saying they need a solution to trade finance duplication, but they can’t solve it on their own because they know that if there’s a gap in the market, fraudsters will fundamentally leverage that gap.”

MonetaGo’s solution provides a way for banks to determine if a trade transaction has been financed by someone else, using the same data fields and standards used by the ICC Standards Toolkit. 

Building on the framework established by the ICC allows MonetaGo to serve banks and alternative financiers by being interoperable with existing trade finance platforms, meaning minimal impact to business systems and processes. 

MonetaGo’s Secure Financing solution has been live in production since March 2018 and has processed millions of transactions with more than 30,000 duplicate financing prevented. It is available to financiers globally via multiple connectivity methods, including Swift.