While artificial intelligence is poised to rapidly reshape banking, the paper-wedded world of trade finance remains stuck taking baby steps towards digitalisation. A few years ago, it seemed that momentum towards a world dominated by bank-led digital platforms and electronic trade documents was unstoppable. But banks, scarred by startup shut-downs and lukewarm client appetite, are now taking a much more cautious approach.
At the end of the last decade, the hottest conversation in trade finance was the bank-led initiatives that promised to usher the sector into the digital era.
Lenders formed inter-bank committees, made investments, established companies and commissioned experts to draw up rulebooks and procedures designed to overcome regulatory hurdles and handle the complexity of paper-based trade. For technology vendors, particularly those involved in blockchain, it was a boom time. At the dawn of the 2020s, the world was plunged into the Covid-19 pandemic, which further underscored the need to digitise, and momentum only seemed to be snowballing.
Around the same time, the roll-out of laws enabling digital negotiable instruments such as electronic bills of lading (eBLs), particularly the UK’s Electronic Trade Documents Act, was seen as sweeping away a major obstacle to digitalisation.
Then, it all seemed to lose momentum. Most of those platforms and consortia created by banks have since shut down, as banks baulked at handing over more capital without signs they were gaining broad traction or likely to generate returns.
And despite supportive legislation in key trade finance and legal hubs such as France, the UK and Singapore, transactions using digital trade documents along those corridors appear to be limited.
In interviews and private conversations over recent months, several trade finance bankers and fintech providers say banks are increasingly sitting back and adopting a wait-and-see approach to trade finance digitalisation, rather than putting it at the centre of their strategies as many once did.
One observer says banks are “drifting” on the issue: scarred by platform failure or overwhelmed by the sheer number of solutions and platforms on the market. Another says lenders are in a state of “fatigue”.
There was a “euphoric phase” spanning from around 2015 to the pandemic, says Maybank’s head of supply chain finance Tat Yeen Yap, with banks piling into hyped-up blockchain ventures, partly driven by a fear of missing out. “Banks are more careful now,” he says. “One thing they learned was that euphoria doesn’t translate into achievements.”
“Because there are so many companies coming to the market with [digital trade] products, the banks are not receptive,” says Patrik Zekkar, until recently head of trade finance, and previously chief executive, of leading trade finance fintech Enigio. “They are just getting more and more confused with so many solutions.”
To be sure, progress on digitalisation is continuing. There are many banks investing in and experimenting with proofs of concept and pilots designed to show how eBLs and other digital documents can be incorporated into financing structures.
Lloyds Bank in the UK for example, has continued to work with fintechs such as Enigio and Mercore to road-test cross-border use of electronic documents. In recent times, a lot of that work has focused on making platforms interoperable so that a digital document can be passed along a transaction chain without every party needing to use the same technology provider.
Away from bills of lading and letters of credit, lenders are taking advantage of the opportunities that MLETR-style legislation has opened up for so-called digital negotiable instruments – electronic versions of traditional paper instruments such as bills of exchange. Major banks such as Citi and JP Morgan, as well as a clutch of fintechs, have started offering digital bills of exchange in certain markets. There are also vendors working on supply chain finance structures using the same or similar instruments.
Banks are also gradually ditching legacy back-office systems in favour of newer, shinier platforms and infrastructure (although this is often part of an organisation-wide transformation).
Komgo, a bank-founded trade transaction management platform, is one of the few survivors of the post-pandemic platform clear-out to have built a large user base among banks.
“Because there are so many companies coming to the market with [digital trade] products, the banks are not receptive. They are just getting
Patrik Zekkar, formerly of Enigio
more and more confused with so many solutions.”
But ultimately, despite progress in some pockets, the vast majority of bread-and-butter trade finance transactions still rely on paper bills of lading and physical presentations of letters of credit at banks – all supported by a combination of emails and PDFs and banks’ back-office systems.
One banker familiar with the Singapore market said that while there has been no legislative barrier to the use of eBLs between the city-state and the UK since 2023, the number of transactions financed by that bank using the instruments since then could be counted on one hand.
A wide range of sources say the eUCPs, the ICC’s rules for electronic documents in trade finance, are rarely called upon by banks because of the low number of digital transactions.
In interviews conducted by GTR over several months, two key reasons for this reality emerged: banks’ wariness of integrating with digital platforms, and a widespread lack of demand from their corporate clients.
Platform scars
Digital trade finance platforms come in various guises. Some, such as Komgo and Mitigram, help banks and corporates manage and process trade transactions digitally, while more general software providers are building out similar capabilities. Others specialise in creating, issuing and managing digital trade documents: think Bolero, CargoX, Enigio, Ice Digital Trade and WaveBL.
Some platforms have been around for many years, even decades, and there is no suggestion they are financially unsound.
But industry figures point out that banks are typically conservative organisations, and integrations with comparatively fledgling fintechs can be slow and highly selective. That has only intensified after the failure of a slew of platforms that were created by banks themselves.
“Things have failed in the past: bank payment obligation, Contour, we.trade, Marco Polo – which one will fail next? That’s a bit of a concern out there for joining innovative solutions,” says Jacco de Jong, whose career has included trade finance banking, a long stint at eBL pioneer Bolero, and co-founding boutique software provider TradeWiz.
“Many of the companies involved in these innovations are often startups slash fintechs in the startup and maybe funding mode – will they survive? Are their business models geared towards becoming profitable over time, or just towards hopefully finding the next best thing since sliced bread and just selling off the company? Or are they going to fall over because they never reach the moment when they become profitable, let alone reach the break-even stage?”
If one word has dominated industry discussions on digitalisation in recent years, it is interoperability. There has been a general understanding that no single platform is going to reach the nirvana of universal adoption. That means infrastructure and standards are needed to allow digital trade documents to flow freely across platforms. They must also be accepted by critical ecosystem participants such as customs authorities, freight forwarders and carriers.
The International Chamber of Commerce’s (ICC) Digital Standards Initiative (DSI) has been at the forefront of trying to make this a reality, alongside finding ways for platforms to be considered a “reliable system” – a common requirement under digital trade enabling laws.
But the DSI’s head, Pamela Mar, believes lenders are still baulking at questions of platform compatibility. “When we ask banks – banks with massive resources – why aren’t you digitalising faster, the banks admit within the banks’ four walls, things are very digital,” she said at GTR West Africa in April. But “as soon as it involves a third-party connection, they say we’re afraid of… system lock-in, system incompatibility, the cost of integration”.
“Every solution does it in their way, so [banks] don’t know where to bet, because it’s a kind of a one-way street for a bank,” says Zekkar. “Once they select the technology, it’s very difficult for them to reverse [course] given all the steps they need to go through to onboard suppliers, new technology, go to market.”
Zekkar also points out that the technology vendors themselves don’t have the luxury of devoting all their time solely to lenders’ needs. They must cater to a wide range of users, such as border authorities, shipping firms and corporate clients.
“Things have failed in the past: bank payment obligation, Contour, we.trade, Marco Polo – which one will fail next? That’s a bit of a concern out there for joining innovative solutions.”
Jacco de Jong, TradeWiz
Despite the less upbeat mood music compared to the heady days of the late 2010s and early 2020s, there is still a steady stream of pilots and proofs of concept being made public. These include demonstrating interoperability between platforms, facilitating digital trade flows between traditionally tricky countries such as China, and incorporating newer innovations such as AI, stablecoins and tokenisation.
But many spoken to for this story remark on the difficulty of translating successful pilots into ongoing business that earns dependable revenue for those involved, including the platforms themselves.
“I think success has been all about scaling and commercialisation,” Komgo’s Alex Pritchard-Smith said at a Baft (Bankers Association for Finance and Trade) event in March. “It’s well and good having your pilots and your proofs of concept, but if you cannot generate revenue as a platform, your timeline is limited.”
Even if a bank is impressed by the results of a pilot, the integration work that must follow to turn it into a permanent product or partnership takes time and money. Trade finance is a dependable and high-volume business, but it does not boast fat margins or big boom years to make large technology investments an easy sell. And almost everyone interviewed for this story said lenders have become less keen to splash out on capex after the platform failures earlier this decade.
“Banks have to spend X, and if that does not result in a Y that is very profitable, they will not spend the X,” says de Jong. “And also the more they spend, the more negative their cost-income ratio will be. So if [banks] can’t expect real, proper volumes which will relate to income, they won’t invest the costs, because cost-to-income ratio is a big one.”
So what would move the needle for banks?
Where are the clients?
With some exceptions, bringing up trade finance digitalisation in conversations with corporate trade finance officers or treasurers usually arouses mild curiosity, or a vague recollection that their bank once invited them to join some platform or other. It doesn’t seem to be keeping many awake at night.
Market figures say that alongside the thinning out of platforms and vendors, the other big dynamic shift in recent years has been how banks engage with corporates on the issue.
Lenders are much less likely now to create or join platforms and then encourage their clients to adopt them. Instead, they tend to gravitate towards platforms that already have a strong corporate user base, or wait until their clients ask them to facilitate eBLs or join a particular provider – although that is apparently rare. (It’s been “quite uncommon” for most banks to have clients request the use of eBLs, says Yap.)
“The real push for banks to do something needs to come from the corporates,” says de Jong. “I think the days have gone whereby the banks would say ‘I’ll join five platforms and see what happens’. They now first want to hear from the customers who say, ‘I really want you to participate in this or to do that.’ And then the banks will follow.”
There are some trade finance users who have enthusiastically adopted eBLs or other digital initiatives, particularly in commodities. This is most pronounced in natural resources markets home to giant mining companies such as BHP, Anglo American and Vale. In 2024, Trafigura renewed a borrowing base for its concentrates business, with a syndicate of 27 lenders agreeing to use eBLs as secured collateral.
But further down the company size spectrum one goes, the rarer such firms and initiatives become.
“I think we haven’t really talked to the corporates,” says Zekkar. “Even though we reach out to – we think – a lot of them, we haven’t talked to the majority. If you want to scale, it needs to be very easy for them. They don’t want to know anything about blockchain or cryptography or any technology parts – it must be super simple for them.”
Proponents point out that going digital will reduce transaction times, mitigate delays and save on couriering costs. But this does not appear to have won over a great number of firms. Asked at an off-the-record event recently about the topic, the chief executive of a medium-sized UK exporter said that the costs and hassle of moving to eBLs and adopting a digital-first financing approach simply outweigh the benefits.
“You’re not going to get these AI benefits if you’re still dealing with physically handwritten bills of lading with most of the data still locked in.”
Vinay Mendonca, Finastra
Such attitudes percolate upwards. Maria Mogilnaya, trade finance advisor at digital trade platform CargoX, points out: “It becomes a sort of chain: if the corporate doesn’t ask the bank, the bank doesn’t go to the core banking system provider.”
Mogilnaya’s role includes knocking on the doors of banking software vendors to ask them to introduce electronic trade document functionality. She says while there are some exceptions, they can roughly be divided into two groups: those who say banks aren’t asking for electronic document functionality so don’t want to invest in developing it, and others who require lenders to upgrade to their newest and flashiest systems in order to access it.
“I think the digitalisation happens, but very little,” she says. “So these large providers, they build new systems. It’s just that there are not a lot of banks that have decided to make use of them yet. Because of this, it’s like a chicken-and-egg situation. They need the bank to come and say: I will use it.”
Vinay Mendonca, head of trade and supply chain finance product at software provider Finastra and former HSBC banker, says banks will be hesitant to spend money and effort on building eBL capability. But if a company like Finastra “integrates the various existing eBL and digital trade capabilities that are out there within their core processing product kit at an incremental, modular spend – that is something which banks are certainly interested in”.
AI looms large
When it was put to one senior European transaction banker recently that surely trade finance would be fully digital by 2050, they pulled a face that seemed to say: wanna bet? After all, people have been predicting the imminent demise of paper since the beginning of the century.
But most senior bankers – and naturally, those selling the technology – say digitalisation is ultimately a matter of survival for trade finance. Another European banker argued that trade finance cannot afford not to digitise because the costs of maintaining paper-based processes will gobble up the sector’s modest margins.
“They need to put this in place one way or another to be sustainable – there’s no question about it,” says Zekkar. “That’s easy to say but more difficult to do. They don’t feel comfortable. You have a lot of legacy – both in mindset and in systems.”
While there are digitalisation advocates of all ages, some privately point out that senior trade finance leaders nearing retirement may be less inclined to champion a complex transformation programme whose benefits could take years to materialise. Faster progress may come as a new generation of leaders takes over.
For sure, imagination will be required for what comes next. While progress inches forward on digital trade documents, AI is now hogging attention spans and budgets at banks, and back-office heavy sectors like trade finance are ripe for the picking.
Long-term digital advocates such as the DSI’s Mar are now calling on the industry to look at transactions based on data, rather than the documentary approach that has dominated traditional trade finance for more than a century.
Mendonca, of Finastra, argues paper-based trade finance is incompatible with taking advantage of AI.
“I don’t see a slowdown in digitisation because with the scaling of AI, we see a lot of demand from banks to unlock the benefits from it,” he says.
“But you’re not going to get these AI benefits if you’re still dealing with physically handwritten bills of lading with most of the data still locked in.”
