Implement Intelligent Automation to resolve Trade Finance issues
by Amit Sharma, on Nov 13, 2019 9:00:00 PM
Estimated reading time: 3 mins
As the fourth industrial revolution has gained momentum, the international trade has increased in an exponential manner. A booming trade is a harbinger of an efficient economy, which has also resulted in increase in the workload of banks, especially in the Trade Finance domain.
International trade has inherent risks. The risk could be in any form; the buyer not receiving the goods even after payment or the seller not receiving the money even after dispatching the goods. When the buyer and the seller are from two different countries, they engage banking authorities as mediators to hedge-off the associated risk. Trade Finance is a specialized banking function, which reduces the risk associated with global trade. It is a complicated banking process involving minimum four parties.
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How Trade Finance works?
The buyer’s bank provides a letter of credit to the seller’s bank. It provides for payment once the seller submits documents proving that the shipment of the ordered goods has taken place by submitting a bill of lading. The letter of credit stands as a guarantee that once the buyer’s bank has received the proof that the seller has shipped the ordered goods and the terms of agreement are met, the payment can be issued to the seller.
What are the issues in Trade Finance right now?
When a trade transaction happens between two countries, a lot of paper work is involved on both sides of the transaction. As the banking intermediaries assume responsibility to smoothen the transaction, they have to be very particular about each and every document being in place before releasing the payment. This is a tedious, manual task and requires days for finalizing a transaction. As the quantum of global trade increases, the banking intermediaries face tremendous pressure in execution. They need to provide quick service or risk their credibility as a bank. At the same time, they need to optimize operations and curtail OpEx. Naturally, technology or more specifically Intelligent Automation is the best solution.
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How does Intelligent Automation help Trade Finance?
The solution engages Intelligent Data Capture or Optical Character Recognition (OCR) technologies as well as Artificial Intelligence (AI) algorithms to provide end-to-end automation of Trade Finance processes.
For each Trade Finance transaction, the solution auto-extracts data, such as shipper name, port of entry, invoice number, amount, currency, etc., from the supporting documents. It reads the information and categorizes the documents under pre-defined headings, such as bill of lading, packing slip, invoice, purchase order, etc from a huge collection of free text documents in unstructured format. In case a particular supporting is missing, it sends alerts to the stakeholders.
The solution weighs each transaction against the lists published by governing bodies, such as OFAC, Hunter, FIRCO, World Check, Sanctions, Blacklisting, etc., to weed out incredulous transactions. Intelligent features can be further built into the solution to have Smart Inboxes for validators that raises flags depending on priority of the transaction or shifts the transaction to another validator’s inbox to circumvent bottlenecks and save time.
After the validator validates a transaction and gives the final approval, the transaction is integrated with the core banking system to finally release a SWIFT payment to the seller’s bank thus closing the transaction loop.
The solution ensures a completely paperless, electronically-driven environment. It can be hosted on-premise as well as on-cloud. It ensures quality output and fast processing as compared to manual transactions.
How Intelligent Automation solution for Trade Finance measure up?
As per WTO, world merchandise exports increased to US$ 17.73 trillion in 2017, up from US$ 16.03 trillion in 2016. They totaled US$ 19.48 trillion in 2018, up 10% from the previous year. As global trade volumes rise, it becomes mandatory for the banking sector to support the market to retain its buoyancy.
Intelligent Automation helps banks automate the document handling, verification & validation, compliance checks, and integration. It increases the efficiency the 65% and reduces errors by 40%. The solution significantly reduces the time to process the letters of credit, reduces the back and forth interactions between involved parties, and improves customer satisfaction.
The solution reduces operational costs, matches cases with skills of the verifiers, and provides business agility. It also reduces the TAT, offers 360 degree business monitoring, along with seamless integration with business systems. In short, the solution helps realize optimal resource utilization.
Technology is the corner stone of a thriving economy. Intelligent Automation not only helps automate and expedite tedious paper-based manual processes involved in cross border trade but also improves compliance and mitigates fraud as well as money laundering instances. It seamlessly integrates with global monitoring agencies and automates statutory checks and validations. Simply put, Intelligent Automation facilitates business transformation. Bringing together organizational leadership and intelligent automation facilitates building of engaging solutions towards fuelling a smarter and buoyant economy.