The Philanthropy Paradox

Swapping manual complexity for digital efficiency: the future of trade finance

Trade finance is going through a period of unprecedented evolution. Once an industry notorious for its stubbornness in the face of change, new and innovative digital technologies have now matured to the point where they are finally transforming it into a more streamlined and cost-effective place to do business for all participants.

Some of trade’s biggest operational challenges – like incorrect documentation and KYC, noninteroperable systems, poor visibility, manual reconciliation – are now being addressed and overcome by forwardthinking digital solutions.

Enterprise blockchain is perhaps the most promising – and appropriate – technology to emerge for this sector. Trade is inherently a decentralised system. The industry is heavily intermediated – predominantly by banks that help to facilitate transactions and provide the financing behind them, but also by insurers, customs officials and other market participants. Over and over again firms have tried to apply centralised solutions to this decentralised system, which of course has never really worked.

The decentralised nature of blockchain makes it a perfect fit for trade finance. For the first time the entire industry is getting behind a technology and moving it into real world deployment at record pace.

Meanwhile, regulators are working with technology providers to understand how to audit and gain insight into the transactions taking place on these new blockchain-based platforms, and ensuring suitable laws are in place, including those relating to electronic documentation and electronic signatures.

The architecture underpinning the entire ecosystem of trade is undergoing complete digital transformation – but how are participants benefiting from this change?

Unravelling complexity

Many of the processes and technologies underpinning trade finance have not been modernised in decades. The result is that those transactions continue to rely on paper-heavy processing, unsuitable for the current digital age. Traditional technology required corporates to log into multiple portals and juggle relationships and documentation for each shipment.

These inefficiencies in trade finance mean that nearly USD $1.5 trillion of demand for trade finance is rejected by banks, according to the Asian Development Bank (ADB), with 60% of banks expecting this figure to increase over the next two years. Developing markets that rely heavily on access to trade can be severely hindered through these outdated processes.

In addition, businesses all over the world must navigate the growing threat of cyber-attacks, changing regulations, and ever-changing sanctions lists. Despite this complexity, cumbersome and time-consuming paper-based exchanges are still commonplace. Take, for example, invoice financing. While a common activity, managing invoice payments and terms can be slow and inefficient for companies and their trading partners. They must navigate different currencies and jurisdictions, each with unique requirements in terms of contract terms and payments.

By digitising these manual processes and superseding ageing legacy systems, a technology such as blockchain has a real impact on reducing the costs, risks and delays to participants involved in trade finance.

If applied effectively, the technology has the potential to unlock the potential $1.5 trillion opportunity in global trade finance. Companies of all sizes will benefit from better visibility into trading relationships and easier access to financing options, beyond point-topoint relationships, to a global network of trading parties.

A decentralised, global network

Blockchain’s integration across the financial services ecosystem has delivered some encouraging results so far. While the rollout has been more gradual than some of the more over-enthusiastic predictions, many see it as a brilliant innovation capable of remedying a lot of the operational pain-points perturbing financial services. As such, there is growing debate about how blockchain can provide decentralised solutions to solve many of the problems facing trade financing.

One such solution is real-time visibility, which is available via permissioned access to authorised network users, and gives buyers and sellers unprecedented transparency into the status of their transactions.

This single source of truth and use of smart contracts could remove a number of inefficiencies in the paper-heavy processes that exist in trade finance, such as negotiations of letters of credit. In addition, settlement finality removes the need for intermediaries to perform reconciliations. All of these applications could streamline the entire process.

Achieving the network effect

In order to move towards a truly digitised and connected ecosystem for trade finance, mass adoption on a global scale is essential. This elusive network effect can only be achieved if technology players prioritise forwardthinking and inclusive integration solutions that lower the barriers to entry for all types of companies involved in the trading process. If only a handful of firms adopt a blockchain solution for invoice financing, for example, the solution is useless if one company needs to trade with another that is outside this circle of early adopters. All the other benefits of blockchain such as speed, efficiency and lower costs mean nothing if you cannot use the platform to connect with the necessary counterparties.

Like any piece of enterprise technology, blockchain will be most useful when used in conjunction with existing systems. The reality is that most businesses are not full digitally native and so will continue to rely on legacy systems – all to different extents – in the near future.

The key to unlocking blockchain’s true potential, therefore, is not to try and oust these but to make sure the technology fits into the right places, with minimal cost and disruption to a firm’s day-to-day business. Put simply, integration holds the single most important key to rewiring the $8 trillion global trade finance market. Alisa DiCaprio Head of Trade and Supply Chain R3

As Head of Trade and Supply Chain at R3, Alisa is responsible for trade strategy, standards and governance design. Alisa was previously a senior economist at the Asian Development Bank and holds a PhD from MIT.

How Forte Insurance Weathered the Storm That Was 2020

With over 20 years in the market, award-winning Forte Insurance is the largest and most recognised insurer in Cambodia, and continues to enjoy success despite a difficult year. Charles Cheo, the Executive Chairman of Forte Insurance (Cambodia) Plc., spoke to us about how they are addressing the challenges posed by COVID-19, promoting awareness of life insurance, and planning to optimise growth in 2021 and beyond.

Insurance premiums at Forte have seen a net increase of 17% year-on-year for the first nine months of 2020, according to the latest figures. We asked Charles about his thoughts on this and for his insight as to how various insurance segments have been impacted in different ways.

“Cambodia has done a commendable job managing the public health aspect of the pandemic,” Charles told us. “Obviously, there has been a greater focus on people’s health and business disruption, which in turn has led to greater interest in insurance.

“Travel insurance has been affected immensely – tourism has been shut down for the better part of a year. However, our life and health insurance products have been doing well. The pandemic has brought those issues into greater focus for people from all walks of life.” Charles was keen to explain what the COVID-19 coverage they offer entails, as well as how they are assisting their customers during such a challenging time.

“This coverage, which is provided by a consortium of insurance companies in Cambodia, is designed to provide travellers to the country with the necessary protection mandated by the government,” he said. “While tourism remains closed, Cambodia is cautiously allowing the entry of a range of people who work and live in the country, with the aim of helping mitigate the economic impact of the outbreak. This coverage helps ensure policyholders have the resources available in the unfortunate situation that they test positive and require treatment after arrival.

“Early on during the pandemic, we communicated with our customers to let them know we are available to serve them as usual. Given the economic impact, we have also worked with those customers who have had a difficult time keeping up with their premiums. We recognise that we are all in this together and need to support each other to emerge stronger.”

Forte places great importance on providing efficient, comprehensive services, so we asked Charles about how they communicate their policies in ways that are understandable to all, and what they are doing to promote awareness of life insurance in Cambodia to a younger audience.

“Over the years, Forte has worked very hard to ensure that our policies and related documentation are as simple as practicable. We also train our staff and agents to explain the terms of coverage and procedures for filing claims in easy-to-understand language. In developing markets such as Cambodia and Laos, insurance can be seen as too complex and expensive, so we recognise that we have to do more to help customers understand what they are purchasing.

“We are using a variety of traditional and non-traditional ways to promote life insurance in Cambodia, which is still a relatively new concept. For example, we have held several client seminars each month in Phnom Penh and in major provincial cities. We have also sponsored a popular radio show to boost awareness. We use a range of digital channels to reach younger customers, such as social media platforms like Facebook and LinkedIn. And in November, we sponsored a music video by popular singer Laura Mam and two other artists called Be With You, which enabled us to reach a whole new audience – it has received millions of views! While it may be too early to see a direct impact on sales, it is never too early to bring young people’s attention and awareness to life insurance products and our company.” As we enter 2021 with hope that the effects of COVID-19 will begin to recede, Forte’s business strategy continues to focus on areas of growth.

“Like everyone else around the world, we are hopeful that the pandemic will be brought under control in 2021,” Charles said. “Nevertheless, we are moving ahead with a number of strategic initiatives. For example, we will continue to focus on promoting Forte Life, which only launched in early 2020. We are also accelerating digitalisation efforts to enhance efficiency and increase service levels. Finally, we are always looking at potential areas for investment. Insurance continues to be in the early stage of growth in many countries in the region, and we are keen to participate in that growth if opportunities align with our strategy. Forte has been very fortunate in that we have been able to weather the storm caused by the outbreak, and remain strong, both financially and operationally.”

Charles Cheo Executive Chairman Forte Insurance (Cambodia) Plc.