Reconceiving The Global Trade Finance Ecosystem Final

In collaboration with
Reconceiving
the global trade
finance ecosystem
November 2021
About the authors
About McKinsey About the Advisory Group
McKinsey is a global management consulting firm on Trade Finance
committed to helping organisations create Change Established by the ICC in August 2020, the Advisory
that Matters. Located in more than 130 cities and 65 Group on Trade Finance (AFT) is a cross-sector
countries, our teams help clients across the private, coalition of leaders in global trade and finance who
public and social sectors shape bold strategies and pledged to highlight the issues faced by micro, small,
transform the way they work, embed technology and medium-size enterprises (MSMEs), advocate for
where it creates value, and build capabilities to better access to trade finance, and think about how
sustain the change. Not just any change, but change the global trade ecosystem can better serve MSMEs.
that matters—for their organizations, their people, The ATF is co-chaired by Victor K. Fung, Chairman
and for society at large. of the Fung Group, and Marcus Wallenberg, Chair of
SEB, and its members include: Amy Jadesimi, CEO
For more information on McKinsey,
of Lagos Deep Offshore Logistics Base (LADOL);
please visit mckinsey.com.
Flora Mutahi, CEO of Melvin Marsh; Takeshi Niinami,
President and CEO of Suntory Holdings; Samuel
About the International Chamber
Palmisano, Chairman of the Center for Global
of Commerce
Enterprise; Mark Tucker, Group Chairman of HSBC
The International Chamber of Commerce (ICC) is Holdings; Jeremy Weir, CEO, Trafigura; and Zhu
the institutional representative of more than 45 Min, Chairman of the National Institute of Financial
million companies in over 100 countries. ICC’s core Research at Tsinghua University. ICC Secretary
mission is to make business work for everyone, General John W.H. Denton AO also joins the ATF as
every day, everywhere. Through a unique mix of an ex officio member.
advocacy, solutions, and standard setting, we
promote international trade, responsible business For more information on the AFT,
conduct, and a global approach to regulation, please visit iccwbo.org.
in addition to providing market-leading dispute
resolution services. Our members include many of About Fung Business Intelligence
the world’s leading companies, small and medium- Fung Business Intelligence monitors, analyses
size enterprises (SMEs), business associations, and and reports on global developments in sourcing,
local chambers of commerce. supply chain, distribution and retail with a particular
focus on China. As the knowledge bank and think
For more information on the ICC,
tank of the Fung Group, it also leverages unique
please visit iccwbo.org.
relationships and information networks to provide
the Group’s companies and their clients with
research and consulting services to assist day-to-
day decision making. Headquartered in Hong Kong,
Fung Business Intelligence was established in the
year 2000.
For more information on Fung Business Intelligence,
please visit fbicgroup.com.
I Reconceiving the global trade finance ecosystem

Acknowledgments
This report is the result of the collective effort of a (HSBC), Prakhar Porwal (McKinsey), Harri Rantanen
group of authors. Alessio Botta is a senior partner (SEB), Eugenio Reggianini (Hyperledger Trade
in McKinsey’s Milan office and Adolfo Tunon is a Finance SIG), Krishnan Ramadurai (HSBC), Magnus
McKinsey senior advisor based in London. Reema Schöldtz (Wallenberg Foundations AB), Surath
Jain is a senior knowledge expert, and Priyanka Sengupta (HSBC), Gabriela Skouloudi (McKinsey),
Ralhan is an insights specialist, both in McKinsey’s Jianqiu Wang, Chongyang Zhang (Tsinghua
Gurugram office. Pamela Mar is Executive Vice University), Michael Vrontamitis, and Vincent Zheng
President, Knowledge and Applications, Fung (McKinsey).
Academy, Fung Group. Andrew Wilson is Global
Thanks is also due to the McKinsey Global
Policy Director and Permanent Observer to the
Banking Practice Editorial team: Matt Cooke,
United Nations for the International Chamber of
Chris Depin, Paul Feldman, Kate McCarthy, Monica
Commerce.
Runggatscher. And to our editor, Glen Sarvady.
This report is based on the efforts of contributors
Finally, we would like to extend a special thanks
from across the globe spanning multiple
to Anabel Gonzalez and Kevin Sneader for their
organizations—representing the reach and the
guidance and support as founding members of the
diversity of the trade finance ecosystem. The authors
ATF.
of the report know firsthand that without the tireless
efforts and expertise of colleagues, partners, and
industry participants, we would have little of value
to share. It is not possible to name all who have
contributed on so many levels, but we would like to
thank in particular those who provided substantial
insights and feedback to enrich the report.
For their contribution to the demand-side
research, we would like to thank Hesham El Mais,
Irina Kasatkina and Kim Mingo from McKinsey; Kiril
Popov, Vasudev Raina, JP Stevenson, and Sophie
Zhang of the Fung Group; and Sabrina Klayman from
the ICC.
For their contribution to various aspects related
to the ideation and writing of this report, we
would like to thank Pedro Anaya (HSBC), Natalie
Blyth (HSBC), Christopher Caine (Center for Global
Enterprise), Bertrand Chen (Global Shipping
Business Network), Onur Gur (Fung Group), Taisuke
Hashimoto (Suntory), Tomasch Kubiak (ICC), Oswald
Kuyler (ICC), Juliette Xue Lascoux (SEB), Gottfried
Leibbrandt, Pavan Kumar Masanam (McKinsey),
Barbara Meynert (Fung Group), Barry O’Byrne
Reconceiving the global trade finance ecosystem II

Contents
Foreword 1
Section 1: Reflecting the needs of all participants in the trade finance ecosystem 5
Section 2: A vision for network interoperability for current and new market players 15
Section 3: Building a consensus for global interoperability 31
Conclusion 44
Additional research 47
The International Chamber of Commerce’s Digital Standard Initiative 48
How regulation and technology are reshaping trade finance in China 49
Detailed insights from our demand-side research 51
III Reconceiving the global trade finance ecosystem

Foreword
Trade finance—which encompasses the financial services and instruments that facilitate the
movement of goods and services¹—is essential to global commerce. Financial institutions are
a critical facilitator of trade, with around 40 percent of global goods traded being supported
by bank-intermediated trade finance.2 This is especially important for emerging economies,
as roughly half the value of trade finance applications originate from the Asia–Pacific region.3
Despite trade finance’s critical role, however, gaps in coverage have been recognized for
some time, particularly for the micro, small, and medium-size enterprises (MSMEs) that serve
an increasingly important role in global trade. A recent Asian Development Bank (ADB) study
estimated that the gap in trade finance availability had reached $1.7 trillion (15 percent higher
than the ADB’s 2019 estimate of $1.5 trillion), with rejection rates for MSMEs running at 40
percent. As a share of global goods traded, the gap increased to 10 percent in 2020 from
8 percent in 2018.⁴ A 2017 World Bank study indicated that 65 million MSMEs were credit
constrained.5 Such shortfalls are widely recognized to be exacerbated by the impact of the
COVID-19 pandemic and are expected to persist absent corrective measures.
As trade and supply chains grow more complex—involving more intermediaries, service
providers, regulatory clearances, and certifications—MSMEs face greater challenges in
accessing financing and, by extension, more complexity in market access and documentation.
Multinational corporations have begun to leverage digital technologies that offer the promise
of improved supply-chain efficiency and transparency, establishing new digital networks to
facilitate trade and finance. By contrast, the fragmented nature and limited scale of MSMEs
makes it difficult for them to capitalize on such opportunities.
Meanwhile, the broader financial sector continues to evolve rapidly, pursuing promising
avenues like modernized digital platforms and networks and the accelerating digitization of
transactions across all segments of society. Supply chains have proven to be fertile ground
for early commercial blockchain applications, and many central banks are now exploring
the potential of central-bank digital currencies (CBDCs). Such initiatives set the stage for
potentially significant advances in efficiency and connectivity, enabling all players to interact
more fluently while harnessing the power of data to provide more and better services.
The trade finance industry must similarly consider how to accelerate its transition to a more
digital and interconnected ecosystem, leveraging new models to achieve inclusivity, close
persistent funding gaps, and modernize processes that inhibit the industry’s progress.
1 As defined by BIS, trade finance refers to products provided by banks and financial institutions to help businesses
manage their international payments and associated risks, along with working capital. See “Trade finance: Developments
and issues,” Bank for International Settlements, January 2014, bis.org. The research described in this report considered
a broad set of financial instruments supporting business-to-business global trade, including risk-covering instruments
(often referred to as documentary business, for example, letters of credit and guarantees), buyer-led finance and liquidity
solutions (for example, supply-chain finance, dynamic discounting), and cross-border seller-side finance (for example,
invoice discounting, factoring, pre-shipping finance).
2 Asia–Pacific Trade Facilitation Report 2019: Bridging trade finance gaps through technology, UN Economic and Social
Commission for Asia and the Pacific (ESCAP) and Asian Development Bank (ADB), September 2019, adb.org.
3 Steven Beck, Alisa Di Caprio, and Kijin Kim, “2017 trade finance gaps, growth, and jobs survey,” ADB Briefs (Asia
Development Bank), September 2017, Number 83, adb.org.
4 Steven Beck et al., “2021 trade finance gaps, growth, and jobs survey,” ADB Briefs, October 2021, Number 192, adb.org.
5 Miriam Bruhn et al., MSME finance gap: Assessment of the shortfalls and opportunities in financing micro, small and
medium enterprises in emerging markets, International Finance Corporation working paper, 2017, openknowledge.
worldbank.org.
Reconceiving the global trade finance ecosystem 1

Analysis for this research paper suggests that we are nearing a turning point in the market—
an opportunity to reconceive, redesign, and build an ecosystem that harnesses technology
to overcome decades-old issues of access and inefficiency and to position the sector for
the future. The current moment, during which the trade finance ecosystem contemplates a
postpandemic landscape, appears to be an opportune one for action. Innovation will depend
on deliberate action and a framework that encourages collaboration across all key players to
enact more effective industry standards.
In August 2020, in the wake of tightening conditions in the global trade finance market linked
to the COVID-19 pandemic, the International Chamber of Commerce (ICC) established the
Advisory Group on Trade Finance (ATF), a cross-sector coalition of leaders in global trade
and finance that pledged to highlight the issues faced by MSMEs, advocate for better access
to trade finance, and think about how the global trade finance ecosystem can better serve
MSMEs. The ATF is part of a global effort to work with all stakeholders to build awareness
of trade financing’s importance to a postpandemic recovery, inform governments’ and
multilateral institutions’ interventions to mitigate the risks of short-term credit shortages
affecting MSMEs, and provide thought leadership to help bridge persistent trade financing
gaps, particularly in emerging markets.
The ATF, supported by McKinsey as its analytical knowledge partner, undertook with Fung
Business Intelligence a research effort to understand and address the key trade finance
challenges faced by MSMEs. This effort has involved two phases of data collection. The
first phase was demand-side, or end-user, research involving interviews with more than
60 suppliers, buyers, and subject-matter experts from five export-intensive industries in
12 key producer economies to understand the pain points and opportunities of the trade
finance ecosystem. The second consisted of a series of meetings and interviews with more
than 100 subject-matter experts from the worlds of trade, finance, technology, multilateral
organizations, and think tanks, with the goal of framing potential solutions to these trade
finance challenges.
Key takeaways from the research confirm that challenges often vary from country to
country, depending on the unique regulatory and economic environments, the state of local
technological infrastructure and human capacity, and the complexity of trade processes.
While banks continue to play a critical role in funding trade for MSMEs, they encounter
technological, operational process, and other hurdles to extending credit, and these issues
can vary significantly from country to country. Banks, large corporates, and MSMEs have
embraced digitization with varying degrees of urgency, creating a gap between participants
in the analog and digital worlds. Absent a change of mindset, there is significant risk of a
widening gap, which could lead to a two-tier system that separates the haves from the have-
nots.
The research put forward here could serve as the foundation for a new vision of a modernized
global trade finance ecosystem. The proposed model recognizes the solid progress that
networks and players in digitizing parts of the trade and finance processes have made. It also
provides a framework for digitally connecting and facilitating interoperation among these
networks through sets of shared standards, processes, protocols, and guiding principles.
An integral part of the potential vision set out here is an “interoperability layer”—a global
framework of standards and policies that enables participants in the trade ecosystem to
seamlessly connect to both present and future networks. Any ecosystem should lead to
improved scale, efficiency, transparency, and inclusion in the provision of global trade and
financial services, to the mutual benefit of all participants.
One key area where an interoperability layer could enable essential ecosystem advancements
is sustainable finance, which has become increasingly embedded in both public and private
corporate principles and companies’ processes for setting specific targets to meet in order
to deliver the measurable improvement their stakeholders expect. The definition of what
2 Reconceiving the global trade finance ecosystem

qualifies as “green” in the trade finance space remains inconsistent, but this paper can
support a global trade finance ecosystem capable of advancing both current and future
agreed-upon standards of sustainability and inclusive growth.
MSMEs—as well as all other trade participants—should have access to trade and financial
services from a wide pool of global providers. This proposed vision would enable the
establishment of broadly recognized digital identities for each participant, the incorporation
of secure credit and trading data, and full visibility and process tracking. Common standards
and protocols would enable portability within and across networks. Such a digital solution
would also enable faster and better-informed credit risk assessment.
The proposed vision outlined in the report incorporates the extensive contributions of
networks and organizations that have begun paving a path toward efficiency and innovation—
for instance, by crafting well-designed standards that could constitute the foundation of a
future trade finance ecosystem. The next five to ten years should bring significant gains in
the proliferation and interoperability of new networks, aided by the appropriate overlay of
effective governance and the consensus of industry participants. With good governance,
these advancements could set the stage for new models and could expand and democratize
trade by broadening the inclusion of existing and new market participants while applying
technology to make trade faster, more fluid, and more transparent.
ATF looks forward to collaborating with the wide array of trade finance stakeholders, including
the many entities already engaged in advancing the process, to realize this vision for a future-
ready global trade finance ecosystem.
John W.H. Denton AO Victor K. Fung

Secretary General at ICC Group Chairman, Fung Group
Bob Sternfels Marcus Wallenberg

Global Managing Partner, McKinsey Chair of the Board of SEB

Section 1
Reflecting the needs

of all participants
in the trade finance
ecosystem

Trade finance emerged to respond to the needs of enterprises of all sizes around the world.
Indeed, it encompasses a wide range of financial instruments that are essential for global
cross-border trade.6 For instance, trade finance instruments allow enterprises to cover
the inherent risks related to a cross-border trade transaction, whether counterparty risk or
country risk. At the same time, trade finance allows exporters to get cash advances on their
transactions, hence maintaining healthy levels of working capital, and enables the global
supply chain to work smoothly while providing the appropriate flow of credit along the value
chain.
For financial service providers, trade finance is among the most important products in
the wholesale banking portfolio, notwithstanding its relatively small direct contribution to
revenues. In fact, trade finance serves as an “anchor” product that, given its transactional
and recurring nature, generates multiple and frequent interactions with business clients
throughout the year. This intensity of interaction is a key determinant of the health of
wholesale clients’ relationship with their financial provider.
This section begins with an overview of the current landscape, including market structure
and types of participants, and then outlines challenges facing micro, small, and medium-size
enterprises (MSMEs) seeking to participate in this ecosystem, and the opportunities for banks
to help.
The market structure of global trade finance

According to McKinsey’s Global Banking Pools, the global trade finance market covered a
value of approximately $5.2 trillion in 2020, amounting to roughly 6 percent of global GDP.
On the financial supply side, this translates into $40 billion of annual banking revenues,
accounting for nearly 2 percent of overall wholesale banking revenue.
Broadly, the scope of trade finance considered for the purpose of this research includes three
types of products:
1. Documentary business includes traditional on- and off-balance-sheet trade finance
instruments, such as letters of credit, international guarantees, and banks’ payment
obligations, which allow enterprises to cover the risks inherent in cross-border trade
transactions (for example, an exporter looking to manage country-related risks of its
importer’s domestic market). Documentary business accounts for roughly 85 percent
of total trade finance volume (Exhibit 1). By and large, this process is governed by an
international standard administered by SWIFT, a global consortium connecting more
than 11,000 financial institutions. Transactions rely on the participation of multiple
parties, including logistics players, resulting in highly complex workflows and substantial
paperwork. Indeed, although financial messages are regulated by SWIFT, documentary
business transactions require a significant number of additional paper-based documents
(for example, bills of lading), typically with nonstandard formats. Suppliers and buyers
face further challenges with respect to compliance and regulation, including embargoes,
blacklists, and anti-money-laundering rules.
2. Buyer-led finance includes products that enable both buyers and suppliers to optimize
their working capital for cross-border trade through programs sponsored by buyers—for
example, payables financing (also known as reverse factoring), which gives suppliers the
option of receiving from a funding bank the discounted value of its outstanding invoices
prior to their actual due date. An additional variant is dynamic discounting, which enables
6 In this report, global trade refers to cross-border trade, and the vision proposed applies to cross-border trade. It is
possible, however, that large markets could also achieve significant impact by adopting the measures outlined here for
domestic trade.

Exhibit 1
The estimated $5.2 trillion annual

global trade finance volume is highly
concentrated in Asia–Pacific.
Regions Products
100% = $5.2 trillion1 100% = $5.2 trillion1
30%
10%
55% 85% Buyer-led finance3
EMEA
5%
Asia–Pacific 15%
Cross-border
Americas Documentary business2 supplier-side
finance4
1
The scope of trade finance volumes represented covers the financing for international trade and supply-chain volumes (cross-border trade-linked opportunity)
and excludes domestic trade financing, such as domestic factoring, and domestic guarantees.
2
Examples include letters of credit and international guarantees.
3
Examples include payables financing and dynamic discounting.
4
Examples include receivables discounting and forfeiting.
Source: Capital IQ; FCI Annual Review; ICC Trade Finance Survey; IMF Direction of Trade Statistics; McKinsey research
buyers to use their own funds to pay an invoice prior to the original due date. These
products help unlock working capital by optimizing cash flow; buyers can extend payment
terms, and suppliers accepting a discount are paid sooner. The category accounts for
less than 10 percent of trade finance volumes but is commonly regarded as an untapped
market with the potential to grow to roughly ten times its current size, given that only
a small share of payables is financed today. To tap this opportunity, some banks have
developed fully automated supply-chain finance platforms based on legacy technology,
which if successfully scaled, could achieve attractive cost-to-serve figures. Notably, in the
past ten years, a few dozen fintechs exclusively focused on this business have emerged,
further enabling financing for MSMEs. An increasing number of large corporates have
signed up for buyer-led finance programs to create resilient supply chains. Reduced
financing cost has attracted MSMEs to opt for early payments through these types of
programs, which showed especially strong growth during 2020’s liquidity crunch.
3. Supplier-side finance includes factoring, receivables discounting, forfaiting, and other
products that address corporate sellers’ financing needs by anticipating the liquidity
resulting from commercial transactions. It accounts for roughly one-third of global trade
finance volumes, when considering cross-border flows. Factoring is generally considered
a more complex business than receivables discounting, as it often requires the formal
transfer of credit (and related balance-sheet assets) from the corporate client to a bank.

Given this transfer on the books, cost to serve for supply-side banks depends hugely on
respective countries’ regulatory environments and each player’s liquidity funding costs.
Conversely, receivables discounting is considered among the most basic products for
financing working capital, as it allows companies to transfer their sales invoices to banks
in exchange for liquidity advances. Open-account trade opportunities and MSMEs’ need
for prompt payment combined with limited access to other financing avenues (including
capital markets) drive high demand for this product.
In terms of geographic relevance, Asia–Pacific generates the largest share (55 percent) of
trade finance volume (Exhibit 1). Its market dominance is fueled by increasing trade flows,
both globally and regionally, as well as the continued dependence of large corporates on
supply chains in the region. While the majority of the volumes involving Asia–Pacific are
documentary business (about 90 percent), EMEA and the Americas have somewhat lower
penetration for documentary business (80 to 85 percent) thereby indicating more adoption of
buyer-led and supplier-side finance.
Overview of trade finance participants

The global trade finance ecosystem is complex, incorporating a wide array of diverse
participants. Broadly, participants can be segmented into two groups (Exhibit 2):
— Core participants are parties playing an active role in any trade transaction, including
the exchange of goods and financing. Core participants include enterprises and other
organizations (for example, nongovernmental organizations [NGOs] and public entities)
playing both buyer and supplier roles, financial institutions, technology providers, and
logistics providers.
— Facilitators are parties not participating directly in trade transactions but critical in
facilitating trade through policies and regulations. These include trade organizations,
governments, and regulators.
In this section, we briefly introduce the market participants and discuss their main needs and
challenges.
Core participants
Core participants include buyers and suppliers, which may be enterprises and other
organizations, such as NGOs and public entities. Other core participants are financial
institutions, technology providers, and logistics providers.
Buyers and suppliers. Buyers and suppliers in trade finance include enterprises
and organizations of all sizes. Most, however, are MSMEs, which number approximately
400 million worldwide and serve as the backbone of economies around the globe, accounting
for over 95 percent of firms and 60 to 70 percent of employment.7 This suggests that a
healthy trade ecosystem requires healthy MSMEs.
With 600 million new jobs required by 2030 to absorb the growing global workforce,
according to the World Bank,8 MSME development is a high priority for governments around
the world. A primary constraint on MSME growth and international expansion is access
to financing. In a World Bank survey of business owners, this was the second-most-cited
obstacle facing respondents in emerging markets and developing countries. Large buyers
seeking to maintain a lean and efficient supply chain and strong vendor relationships are
increasingly pursuing solutions to support supplier financing, which is commonly necessary to
accelerate production, shipments, and deliveries.
7 “Small & medium-sized enterprises,” National Action Plans on Business and Human Rights, globalnaps.org.
8 “Small and medium enterprises (SMEs) finance,” World Bank, worldbank.org.

Exhibit 2
The global trade finance ecosystem can be

segmented into core participants and facilitators.
Exchange of goods or services Exchange of money Technology services
s
or
at
Financial
nts
it
cil
ipa institutions
Fa
tic
r
pa
re
Co
Buyers Technology Suppliers

(eg, large (eg,
providers
corporates) MSMEs)
Trade Logistics Govern-

organiza- providers ments and
tions regulators
Source: ATF analysis
Since buyers and suppliers are constantly seeking to expand their markets, participation in
trade marketplaces—both physical and digital—plays an essential role in their strategies. To
be of true benefit, digital marketplaces need to be interoperable with other marketplaces, and
the services and technical interfaces between participants and marketplaces need to adhere
to certain standards and protocols. Otherwise, the time and expense of connecting to each
marketplace could become prohibitive.
Finally, buyers and suppliers are looking to operate as cost-efficiently as possible. Cross-border
payments and trade document processing add up to a meaningful portion of trading costs.
Any improvements in these areas brought about by leveraging new technology and alternative
payment corridors will generate significant benefits in companies’ overall cost profile.
Financial institutions. In the trade finance ecosystem, financial institutions provide the
liquidity and the risk assessment needed for executing trade transactions, along with a wide
range of services to satisfy a growing list of trade participants’ adjacent requirements. Several
types of institutions participate in the ecosystem, with the following being the most common:

— Corporate banks actively intermediate trade transactions, and in recent years
competitive pressures have pushed them to become more efficient and offer more
effective services. A bank’s first tasks with a new client are to verify its identity and assess
the suitability of and risks involved with maintaining a business relationship with that
client. Banks also must keep abreast of evolving regulations in the countries where they
operate and maintain a rigorous control and compliance environment. They need to make
almost-constant investments in technology and digitization in order to keep pace in terms
of innovation and cost efficiency. Increasingly, banks find that not every solution can be
developed in-house, so they must continually scan the market and assess a wide range
of innovations, such as core trade finance systems, applications supporting specific trade
processes, and trade platforms that enable them to better distribute services across client
segments and countries.
— Institutional investors are active participants in the secondary market, buying assets
sold by banks to create capacity to issue further credit (often called the “originate to
distribute” model). As an investable asset, trade finance has desirable attributes, including
typically low default rates, attractive yields (compared with traditional instruments),
short-term durations, and self-liquidating disposition. However, institutional investors to
date have not embraced at-scale trade finance as an investable asset. Indeed, the trade
finance market tends to be illiquid and nontransparent for reasons including technology
limitations—resulting in the lack of a transparent electronic market—and limited risk-
assessment expertise among institutional investors.
A key first step toward bringing liquidity to the trade finance market has been the
recent expansion of the “trade as an asset” concept—the notion of transforming trade
finance transactions into instruments readily exchangeable on securities markets. This
model is being pursued by some specialized fintechs, making it one example of how
digital technologies have opened new avenues of entry for potential participants. Such
securitization and tokenization—that is, creation of a digital representation of these
assets—could expand the market considerably. As institutional investors look to diversify
their portfolios with these trade-related assets, digitization could provide a related boost
in MSME funding availability.
— Credit insurance companies facilitate the overall functioning of the trade ecosystem
by insuring businesses’ accounts receivable from loss due to debtor insolvency, with the
cost (premium) reflecting the credit risk of the insured entity. In addition, they can insure
financial institutions against the risk of obligor nonpayment and help them manage credit
exposure and regulatory capital allocations. Typically, the challenge for credit insurers is
to gain access to and process increasing amounts of accurate information to inform more
precise underwriting.
— Export credit agencies (ECAs) facilitate domestic companies’ exports. Many countries
have state-owned ECAs that provide loans, guarantees, and insurance to help manage
the uncertainty implicit in exporting. Such entities play a key role in international trade
by absorbing country risk, often beyond the level generally accepted by private insurers
and lenders, especially in developing countries. Therefore, ECAs must constantly assess
risk across multiple countries while also working with financial institutions and trade
organizations to identify opportunities for exporters. These agencies are also exploring
digital channels, which could help them make their products—which are often state
aided—available to the broadest number of MSMEs in their countries.
Technology providers. Trade finance technology has adhered to established and traditional
approaches for many years. More recently, however, technical innovations such as advanced
optical character recognition, blockchain, application programming interfaces (APIs), and
natural-language processing have emerged in the space, creating an ideal environment for
the formation of digital trade marketplaces that bring together buyers, suppliers, financial

institutions, and other players in the trade ecosystem. Along similar lines, the Internet of
Things—interconnected devices embedded in everyday objects—is increasingly important
for data collection in trade. The full potential of this technology is still untapped, as
implementations are still running at low volume or are still in the proof-of-concept stage.
After the Second Industrial Revolution, the introduction of steamships and railroads provided
a catalyst to international trade, opening new routes and lower costs. Likewise, the digital
revolution of the 1990s and early 2000s enabled companies to interact with far-flung
suppliers and customers far more efficiently. One study found that a 1 percent reduction in
trade costs can result in a 0.4 percent increase in trade flows.9 We are now witnessing another
wave of innovation that could lead to further trade expansion and, more importantly, greater
inclusion for MSMEs and developing countries.
A wide variety of companies participate in the trade technology space, with most falling into
three categories:
— Established software companies provide the core technology systems that banks have
relied upon for decades. Although trade remains a paper-intensive business, the past
decade has brought signs of a wider digitization of trade processes. In recent years, most
of these companies have transformed their core platforms into open architecture, cloud
technology, and API-enabled systems. We expect that this technological evolution will
continue and that the proliferation of standards—addressed in the next section—can be
expected to provide a further boost.
— B2B trade marketplaces are one of the most dynamic categories in the fintech space,
with many platforms competing to provide digital platforms connecting trade participants
and offering a wide range of trade financial services, including procure-to-pay and
electronic invoicing, supply-chain finance, dynamic discounting, and receivables
financing. Financial institutions tend to work with multiple trade platforms, allowing them
to reach market segments beyond their usual client base.
— Digital disruptors, primarily start-ups, are developing innovative solutions, including data
analytics, simplifying the digitization of trade documents, and vessel-tracking technology.
Potential applications of trade solutions are only scratching the surface, with innovations
spanning artificial intelligence, distributed ledger technology, and the Internet of Things, to
mention a few. The challenge facing these companies is to continue integrating the trade
ecosystems via partnerships with banks and trade marketplaces in an interoperable manner.
Logistics providers. The logistics industry comprises a wide range of players offering
services that help get products to their destinations efficiently. These businesses include
freight forwarders, regional and global ocean carriers, and air-freight firms. Besides
moving goods, these providers facilitate the flow of information, including the completion of
documents (in particular, bills of lading) essential to the financing of trade flows. In addition,
logistics providers constantly track the cargo, communicate with exporters and importers,
interact with ports and customs authorities, and coordinate with warehouses and local
distributors to ensure goods reach their final destination.
Standardization has long been a priority in the logistics industry. The introduction of the
standard cargo container in the 1950s dramatically reduced the cost of loading and unloading
a ship from $5.86 per ton to just $0.16 a ton, in addition to enabling greater security.10 The
future standardization of information, in parallel with its digitization, stands to provide a similar
boost to the future of trade ecosystems.
9 Jacques Bughin and Susan Lund, “Next-generation technologies and the future of trade,” VoxEU CEPR, April 10, 2019,
voxeu.org.
10 Anna Nagurney, “Today’s global economy runs on standardized shipping containers,” The Conversation, April 5, 2021,
theconversation.com.

In a recent article offering predictions of digitization’s impact on container shipping over the
next five years,11 the Digital Container Shipping Association (DCSA) pointed to developments
including progress on customer experience, increased interoperability (with more platforms
that have been built on standards), a focus on sustainability, and an acceleration of innovation
as digital standards lower barriers for new businesses that will transform the industry.
Facilitators
The following descriptions of facilitators look at the main categories identified earlier: trade
organizations, governments, and regulators.
Trade organizations. Numerous trade associations at the local, regional, and global levels
provide support to trade participants. Their role continues to be crucial, and advances in
technology and communications have enabled them to deepen and broaden their impact. One
example is the International Chamber of Commerce, which represents more than 45 million
companies across more than 100 countries. Many other domestic and bilateral chambers
of commerce have an active role in shaping some of the rules, and some other associations,
such as the DCSA and the Global Supply Chain Finance Forum, provide technical standards.
In addition, a few supernational organizations (such as the United Nations) define some of the
standards used in trade finance, as largely described in section 2.
Governments and regulators. Governments and regulators continue to play an essential role
in the facilitation of trade services among market participants, as well as in fostering inclusion.
Participants are bound by market regulations, which can be uneven across countries,
creating challenges for a market that, by definition, crosses borders. Governments may be
especially likely to take an active role when they determine there is a significant market gap.
For example, in response to the challenges resulting from the COVID-19 pandemic, according
to the OECD,12 governments have been looking to their ECAs to fill any financing gaps left by
the private market and to mitigate the impact of the crisis. Further, in an OECD survey,13 43
percent of ECA respondents reported an increase in their business levels, and 64 percent
reported taking measures to increase working capital support.
Key insights from the demand-side research

For the myriad of participating players—and those expected to join the ecosystem—to
address the needs outlined in this section, they will need a thriving and resilient ecosystem.
To provide input into designing such an ecosystem, this working group conducted an analysis
informed by input from a wide range of subject-matter experts at organizations contributing
to the global trade finance industry. The approach taken adopts a holistic view covering all
market participants while ensuring that the sometimes overlooked needs of MSMEs are
sufficiently addressed.
The research behind this report applied design-thinking methodology to identify “personas”—
that is, typical archetypes of MSME end users of trade finance services.14 Interviews revealed
very different behaviors among these users that can be mapped along two main dimensions,
which we call technology readiness and financing and market access (Exhibit 3). Along these
dimensions and based on attitudes and behaviors, five main personas were identified.
11 “Five predictions for the next five years of digitalisation in container shipping,” Digital Container Shipping Association,
September 28, 2021, dcsa.org.
12 “Trade finance in the COVID era: Current and future challenges,” OECD, March 23, 2021, oecd.org.
13 OECD economic outlook, interim report September 2021: Keeping the recovery on track, OECD, September 21, 2021,
oecd.org.
14 As part of this initiative, interviews were conducted with over 60 suppliers, buyers, and subject-matter experts across 16
emerging-market countries and multiple key industry sectors to better understand trade finance end users’ primary pain
points.

Exhibit 3
The research identified five personas

among trade finance end users.
Prevalence of micro and small
enterprises Prevalence of medium-size enterprises
Personas Active Traditional Trade business Prudent New-generation

entrepreneur treasurer manager business CEO
owner
Needs Looks for digital Has the simplest Is stable and Is experienced Owns medium-size
solutions and trade finance confident but and content with conglomerates; is
new business processes and faces certain current business; cash rich and has
opportunities; needs; has issues, mostly has good relations access to funding; is
often struggles limited ability to with regard to with banks stable and steadily
with undeveloped restructure supply payment terms with no capital scaling the business
infrastructure and chains or navigate and access to constraints; has
bureaucracy new global market certain trade a cost-based
spaces finance products mentality in
(eg, factoring) choosing trade
finance products
Technology
readiness
Low High Low High Low High Low High Low High
Financing
& market
access
Low High Low High Low High Low High Low High
Source: Demand-side research based on interviews with 60 treasurers in 16 countries

The demand-side research (see details in the additional research section to this report)
identified three broad categories of trade finance challenges facing MSMEs:
— Access to liquidity. Many MSMEs find themselves either lacking the necessary collateral
or unable to meet risk assessment criteria required to leverage trade finance services.
At the same time, banks may not feel empowered to employ nontraditional means of
assessing supplier risk, due in part to their limited access to enterprise-related historical
data. The lack of maturity of many regions’ alternative finance markets often results in
higher interest rates and capital costs for exporters. The vital areas of know your customer
(KYC) and onboarding also remain major MSME challenges, complicated by the fact that
banks’ analysis of MSMEs is mostly based on static documentation rather than live data.
— Transaction complexity. Trade finance involves intricate workflows spanning multiple
parties, often causing significant manual work and the exchange of paper documents
(for example, bills of lading, purchase orders), resulting in high operational costs and
elevated credit risk. The divergence of regulations across jurisdictions and differential
risk characteristics across trade finance products often gives rise to unduly complex
and opaque processes. For smaller firms that have limited back-office resources and are
already facing bandwidth constraints, the effort required to overcome such administrative
hurdles can be insurmountable, resulting in lost expansion opportunities.
— Access to B2B markets. Suppliers are looking for new buyers and new revenue sources,
yet they often struggle to gain access to new clients because they lack knowledge or
capacity or face other challenges in target B2B markets. Because of COVID-19, some
businesses have faced payment delays from buyers and inflexible payment terms from
their own suppliers, causing gaps in working capital that can inhibit the servicing of
existing clients, let alone new ones.
Much of the current and potential global trade involves micro, small, and medium-size
enterprises, but they face many hurdles to full participation in this global ecosystem. A
deeper understanding of the global trade ecosystem can help participants do more to enable
the growth of trade with these current or would-be buyers and suppliers. The next section
examines how network interoperability might help.

Section 2
A vision for network

interoperability for
current and new
market players

Technology is an integral part of global trade finance today—and has enabled many of the
current systems and services used across the globe. Technology alone, however, cannot
deliver the kind of fully integrated solution that is required to solve the many challenges
faced by participants in the system. It must be accompanied by network effects and more
collaboration among participants. This section outlines a vision for this reimagined ecosystem,
along with the specific elements necessary to realize this vision.
From ‘digital islands’ …

Over the past decades, advancements in technology have given rise to a variety of new trade
finance approaches and players, each focused on addressing the shortcomings of legacy
processes. Unfortunately, innovation has often resulted in “digital islands,” closed systems
of trading partners usually leveraging proprietary technology and coalescing around specific
use cases and pain points (Exhibit 4). While these structures may solve near-term challenges,
they can also unintentionally create longer-term inefficiencies.
Exhibit 4
Simplified representation of the current trade

current market.
finance trade finance market.
Digital trade enablers
Direct bank-
Fintech trade to-MSME
Messaging
finance platform relationship
network
on blockchain (eg, invoice
finance)
Credit
insurance
company
Centralized Logistics
supply chain network on
Credit finance platform blockchain
insurance
company
Institutional Logistics
investor provider
Participant connected Trade finance networks Banks

with multiple networks
Buyers and suppliers Other participants

Such networks—essentially platforms enabling trade between groups of interconnected
participants—can take many forms. For instance, established messaging networks link
financial institutions with buyers and suppliers of all sizes for documentary services.
Centralized supply-chain finance platforms address specific industries and use cases in the
areas of payables finance and dynamic discounting. Fintech firms and networks have aimed
to disrupt the status quo, often leveraging blockchain technology to facilitate transactions
without the traditional level of financial institution involvement, and introducing value-added
features such as data analytics, traceability, smart contracts, automated custom clearance,
fraud mitigation, and permanent storage. Some standards do exist; for example, some
buyers and suppliers use globally recognized digital identifiers and digital trade documents.
But governance and adoption are fragmented and relatively low overall. And where there
is adoption, the standards are usually utilized by a single entity and rarely embraced at a
network level.
In this context, the future global trade finance ecosystem will necessarily encompass
numerous networks. The vision put forward here embraces these existing networks but
makes them interoperable and more accessible.
… to global interoperability
The key to this vision for a future global trade finance ecosystem is an “interoperability layer”
fostering ubiquitous access across networks and platforms. Such a model would significantly
improve global efficiency, in part by sharply limiting redundancies while simultaneously
enabling the adoption of a series of global shared utilities and standards. Importantly, this
model is compatible with the ongoing development of bespoke solutions addressing both
current and prospective pain points that have impacts on specific sectors, geographies, and
other subgroups.
The interoperability layer is a virtual construct designed to act as an umbrella for existing
and future standards, protocols, and guiding principles—though to be clear, it is not a
proposal for regulatory changes or replacement. Although the interoperability layer would
provide no direct services to trade participants, its setting of standards and creation of a
common taxonomy, for example, would be essential to the functioning of an efficient and
truly interoperable ecosystem. The governance of this construct could be provided by a
single global industry entity or by a consortium drawing from several that combined would
provide an aligned framework for open standards, portability, inclusion, and best practices
benefiting market participants across existing and new networks. The ultimate aim would
be the convergence of all participants at a network level, to enable and facilitate adoption
of the ecosystem in the shortest possible time, without it being dependent on the individual
participant (Exhibit 5).

Exhibit 5
Simplified representation of the proposed

vision for the trade finance ecosystem.
Global shared utilities
Company identifier Credit assessment

KYC utilities API gateways
utilities utilities
Interoperability layer
Trade finance Guiding principles
Digital trade enablers interoperability for trade finance
foundations interoperability
Export
credit Institutional
agency investor
Credit
insurance
company
Distributed
Fintech trade
Messaging banking network
finance platform
network Institutional for invoice
investor on blockchain
finance
Credit
insurance
company
Institutional
investor
Centralized Logistics
supply chain network on
finance platform blockchain
Logistics provider
Credit
insurance Logistics provider
company
Logistics provider
Participant connected Trade finance networks Banks

with multiple networks
Buyers and suppliers Other participants

The interoperability layer would establish a global framework representing the common
standard for seamless exchange and interaction of data among trade networks and
participants. In doing so, the layer would promote adoption at scale of these operational
interactions while defining and disseminating additional standards and protocols to fill
additional market gaps identified over time.
This vision is inspired by examples of cooperation across existing trade ecosystem
participants that have generated efficiencies in time, cost, and risk mitigation. The Chinese
market offers just one example of how revamping online risk assessments can enable banks
to process loan applications almost instantly, allowing millions of loans to be extended to
MSMEs (see “How regulation and technology are reshaping trade finance in China,” page 49).
For example, MYbank, an affiliate of Ant Group, working with hundreds of financial services
partners, has served 40 million small and micro enterprises and rural clients since its founding
six years ago.15
According to research conducted by the Institute of Digital Finance of Peking University and
the Bank of International Settlements, such tech-based credit-scoring models outperform
traditional bank models at predicting MSME loan default risk for at least three reasons. First,
they leverage behavioral variables and network indicators, which have proven to be more
stable than typical balance sheet variables. Second, where available, the models incorporate
real-time transaction data in place of potentially dated financial metrics. Finally, they use
machine-learning methods, which capture nonlinear relationships across variables better
than banks’ traditional linear models do.
The proposed new interoperability layer for the global trade finance industry would be
designed around four clear principles:
— An interoperability layer would serve as a virtual framework promoting the sharing of
standards, processes, protocols, and best practices among the ecosystem’s trade finance
participants. It is not intended to be a hardware or software entity to which parties must
connect.
— An interoperability layer would help to foster collaboration among existing and new
entities, thereby avoiding the proliferation of digital islands. In other words, it is not
intended to “reinvent the wheel.” In recent years, many organizations have introduced
protocols and standards to the market to achieve efficiencies; their work should be
leveraged and adopted as part of the new vision.
— An interoperability layer would help to collaboratively define new standards or guidelines
with relevant organizations supporting the trade finance market.
— An interoperability layer should promote financial inclusion through a construct in which
all parties have a fair chance to participate, particularly in segments like MSMEs and
emerging markets.
In essence, the proposal calls for an architecture of common standards and best practices
to reconceive trade finance as more inclusive, collaborative, and digitized. Such architecture
could encompass three main logical blocks: first, digital trade enablers, which would be
standards enabling digitization of global trade at large (beyond trade finance); second, trade
finance interoperability foundations, or standards enabling specific digitization of the trade
finance industry; and third, guiding principles for trade finance interoperability, which would
be nonmandatory recommendations for market participants focused on improving service
levels while reducing cost to serve (Exhibit 6).
15 “MYbank’s use of digital technology leads to record growth in rural clients,” press release, Ant Group, June 23, 2021,
antgroup.com.

Exhibit 6
Much of the logical architecture of an

interoperability layer remains to be developed.
Ready to market Existing, to be integrated To be developed
Guiding
principles for Blue books for trade Best practices for Guidelines for setting up
trade finance finance processes and sustainable trade finance and operating shared
interoperability workflows utilities
AI use cases Financing practices Credit risk assessment
Omnichannel offering Green TF definition Global digital identity
... ... ...
Trade finance Standards for trade finance APIs

interoperability
foundations
Uniform trade finance data models
Trade finance product taxonomy
Digital trade
enablers
Globally recognized Standards for digital
company identifiers trade documents
Some of the building blocks of such an architecture are already present in the market, though
not at scale; others remain only partially developed. Hence, an interoperability layer could be
viewed as central to three key missions (Exhibit 7):
1. Promote adoption at scale of existing trade finance standards for operational interaction
2. Design and disseminate additional global trade finance standards and protocols to fill
market gaps
3. Develop blue books and identify guiding principles for improved collaboration among
trade finance ecosystem participants

Exhibit 7
An interoperability layer would have a three-part

have a three-part mission.
mission.
1 2 3
Promote adoption at scale of Design and disseminate Develop blue books and identify
existing trade finance standards additional global trade finance guiding principles for improved
for operational interaction standards and protocols to fill collaboration among trade
market gaps finance ecosystem participants
— Globally recognized company — Uniform trade finance data models — Blue books for trade finance
identifiers processes and workflows
— Standards for trade finance APIs
— Standards for digital trade — Best practices for sustainability in
documents trade finance
— Trade finance product taxonomy — Guidelines for setting up and
operating shared utilities
The remainder of this section analyzes these three missions, describing in detail the various
building blocks of a logical architecture and the potential role of an interoperability layer.
1. Promote adoption at scale of existing trade finance standards

for operational interaction
Various efforts over recent decades have sought to bring agility, clarity, and transparency to
the interactions of market participants. One barrier to progress has been a lack of common
standards.16 In areas such as quality management and environmental management, ISO
standards have enabled businesses to reduce their costs, increase productivity, and access
new markets. MSMEs have been among the beneficiaries of having standards to follow.
Extending the adoption of existing trade standards could deliver similar benefits to the trade
finance ecosystem.
The core mission of an interoperability layer would be to support a comprehensive review
and articulation of existing standards in the context of the evolution of the trade finance
ecosystem, as well as to champion initiatives for at-scale adoption of the selected standards
(bottom layer of Exhibit 6). Three trade finance initiatives that stand to be boosted by the
wider adoption of standards by private and public entities, along with continuing advances in
technology, serve as illustrations of the available gains.
Globally recognized company identifiers

When a company opens a financial institution account or an importer pays an exporter via
a cross-border transfer, it is essential to unequivocally identify the counterparty of the
transaction. This is required for KYC purposes and also to comply with certain international
16 Stephen Polasky, Belinda Reyers, and Heather Tallis, “Setting the bar: Standards for ecosystem services,” Proceedings of
the National Academy of Sciences, June 16, 2015, Volume 112, Number 24, pnas.org.

regulations requiring the screening of international flows for potential sanctions. Numerous
initiatives have aimed at certifying a company’s identity and by extension its suitability to
engage in certain transactions. This may require validating not only its country of legal registry
(or alternatively its association with a trusted network), but also its ownership and structure.
Given the wealth of alternatives, the most effective model would be one in which market
participants are empowered to select a trusted identity provider based on scale, acceptance,
and ubiquity, with the confidence of knowing it is interoperable with the broader trade
ecosystem, fostering agility and cost efficiency. Identity provision could be managed by well-
established industry utilities, which may be local, regional, or even global. Several existing
initiatives aim to address these compliance and regulatory use cases:
— Legal Entity Identifier (LEI). Aimed at enhancing transparency in the global marketplace,
the LEI provides clear and unique verification of the legal entities participating in financial
transactions. It is based on an alphanumeric code developed by the Global Legal Entity
Identifier Foundation (GLEIF), a body established by the Financial Stability Board (FSB).
The LEI makes two key activities in a complicated process far simpler: verification of
entities and tracking of an entity’s history. Since its 2012 endorsement by the G20,
roughly 1.9 million entities in about 200 countries have been issued an LEI. The FSB
found adoption to be most successful when an LEI is required as part of an international
standard-setting effort.17 This is the case with over-the-counter derivatives trading,
where adoption is close to 100 percent in most jurisdictions. Outside this case, the report
concludes, LEI adoption remains low. Based on previous analysis published by McKinsey,
banks could collectively save $250 million to $500 million annually if LEIs were used to
identify international entities and to automate the tracing of their history for the issuance
of letters of credit.18 They could save another 10 percent ($2 billion to $4 billion) in client
onboarding costs.19
— European Digital Identify (EDI). In June 2021,20 the European Commission proposed the
framework for an EDI that will be made available to all individuals and businesses in the
European Union. Member states will offer businesses digital wallets, provided by either
public authorities or private entities, capable of linking to their national digital identities.
This initiative supports the EU Digital Compass that strives for 90 percent of SMEs to
reach at least a basic level of digital identity by 2030, with three out of four companies
employing cloud computing, big data, and artificial intelligence.21
— Decentralized Identifier (DID). Designed by the W3C, 22 the organization that facilitates
standards for the internet, the DID is a new type of identifier that enables verifiable and
decentralized digital identities that can be leveraged by organizations as well as data
models and is “self-sovereign,” that is, not dependent on any issuing authority.
Standards for digital trade documents

A cross-border transaction typically requires that transaction participants produce and
share a multitude of documents. These documents might include paper and electronic copies
of purchase orders, invoices, bills of lading, receipts for customs tax payments, and other
bureaucratic mandates. Many of these documents are key to trade finance as well, requiring
significant manual back-office effort from financial institutions, which often receive physical
17 Thematic Review of Implementation of the Legal Entity Identifier, Financial Stability Board, May 28, 2019, fsb.org.
18 The legal entity identifier: The value of the unique counterparty ID, October 2017, McKinsey.com.
19 “The power of LEIs to transform client lifecycle management in banking: A U.S.$4 billion beginning,” Global Legal Entity
Identifier Foundation, October 29, 2019, gleif.org.
20 “Commission proposes a trusted and secure Digital Identity for all Europeans,” press release, European Commission, June
3, 2021, ec.europa.eu.
21 Europe’s Digital Decade: Commission sets the course towards a digitally empowered Europe by 2030,” press release,
European Commission, March 9, 2021, ec.europa.eu.

copies of these documents via the postal service. According to recent data from the DCSA,
only 0.1 percent of bills of lading are issued electronically.23
Significant potential exists for gaining efficiency by moving participants to electronic,
transferable trade documents. This is especially true given COVID-19’s added complexities,
such as disruptions in shipping routes, restricted courier services limiting transfer of physical
forms, and remote working arrangements for back-office employees who normally inspect
incoming paper manually.
While numerous efforts have attempted to make electronic documents legally acceptable,
two entities—the United Nations Commission on International Trade Law (UNCITRAL) and the
DCSA—are particularly focused on overcoming the barriers to trade document digitization.
UNCITRAL is a UN legal body focused on international trade law. For more than 24 years, it
has promoted the harmonization of international business rules by aiming to modernize trade
laws and remove or reduce legal obstacles to international trade flow, creating a common
legal standard to enhance predictability in cross-border transactions. In 2017, it introduced
the Model Law on Electronic Transferable Records (MLETR),24 giving legal recognition
to the use of electronically transferable records as functionally equivalent to tangible
documents, such as bills of exchange, checks, promissory notes, and warehouse receipts.
The electronic nature of instruments also enables capturing dynamic information such as
position of the ship carrying goods, thereby helping merge the logistics and finance aspects
of supply chains. Despite the need for digitization created by COVID-19, few countries have
adopted MLETR, with the notable exceptions of Bahrain and Singapore. In May 2021, G7
countries announced their commitment to promote its adoption, including a series of steps
that participating governments should take to remove domestic legal barriers.
The DCSA is leading a process to develop open-source standards for an electronic bill of
lading (eBL) to facilitate communication among customers, container carriers, regulators,
financial institutions, and other industry stakeholders. Bills of lading are of particular
importance among the many documents required for a cross-border trade transaction,
because they confer title to the underlying goods and the majority of players along the trade
value chain rely on them. In 2019, the group launched a multiyear e-documentation initiative,
aimed at delivering standards for end-to-end shipping container digital documentation,
covering a variety of components, including industry blueprints, data and interfaces, the
Internet of Things, and just-in-time port-of-call e-documentation and cybersecurity.25
These standards are being aligned with the United Nations Centre for Trade Facilitation and
Electronic Business to ensure a global industry framework.
Trade finance product taxonomy

The highly specific nature of trade finance subject matter has led to the adoption of a range
of expressions and terms that are often inconsistent, opaque, and even contradictory. For
instance, “supply-chain finance” covers a wide range of products, programs, and solutions in
the financing of commerce, including international trade. It has been used to refer to a single
product or a comprehensive range of products and programs of solutions aimed at addressing
the needs of buyers and suppliers, especially when trading on open account terms, in the
increasingly complex supply chains in which many are involved.
22 “Decentralized Identifiers (DIDs) v1.0,” W3C, August 3, 2021, w3.org.

23 Standard for the bill of lading: A roadmap towards eDocumentation, DCSA, December 2020, dcsa.org.
24 “UNCITRAL model law on electronic transferable records (2017),” UN Commission on International Trade Law, adopted
July 13, 2017, uncitral.un.org.
25 “eDocumentation: Creating a foundation for paperless trade,” DCSA, dcsa.org.

In 2016, the Global Supply Chain Finance Forum, an organization supported by multinational
trade organizations, released Standard definitions for techniques of supply chain
finance,26 in an effort to create a consistent and common understanding applicable to
both domestic and international supply chains. This effort was executed by a team of senior
practitioners, with guidance from an international and multi-industry group. The first edition
includes definitions for eight identified core techniques. In 2021, to provide further clarity
on the concepts discussed, the forum followed it with Enhancement of the standard
definitions for techniques of supply chain finance,27 based on in-depth discussion with
industry experts.
This product taxonomy could be augmented with additional instruments, such as
documentary business not currently covered in these publications, and to treat them as “living
documents” requiring periodic updating. Widespread adoption by financial institutions of a
taxonomy like the one proposed by the Global Supply Chain Finance Forum would greatly
enhance clients’ ability to understand, compare, and select optimal solutions to their trade
finance needs and consider the offerings as an attractive alternative to other financing
models. Clients would be able to weigh the advantages and disadvantages of various
alternatives and to engage in a clearer and more relevant dialogue with finance providers
and supporting communities. In addition, the rapidly emerging array of trade platforms and
marketplaces will greatly benefit from adoption of a standardized “trade finance language”
presented in a glossary of terms and trade product classifications.
2. Design and disseminate additional global trade finance standards

and protocols to fill market gaps
As described in the previous section, there have been many attempts to create a common set
of standards across market participants. However, to date these standards have achieved
only limited adoption relative to the scale of the global trade finance market. Given this
background, the proposal’s mission (Exhibit 7) is to encourage the trade finance community
to develop and adopt the additional elements necessary to foster greater industry agility and
dynamism, especially in technological interoperability. In this vision, two core elements should
be considered as primary additional standards to promote full technical interoperability in
trade finance.
Uniform trade finance data models

Banks are growing adept at sharing information securely across institutions, given
established underlying data strategies. A data model specifies the information to be captured,
as well as how it should be stored and processed. In cases where a standard product
taxonomy has been defined (as described in the previous section), a data model would govern
how a specific product should be represented and would set rules about which records of a
transaction are mandatory and which optional, how to tag such data into technical messages
and storage systems, and which technical formats should be used for each record. The active
engagement of all participants, including regulators, in the establishment of processes to
address local barriers, will be critical.
In an environment where many separate organizations must exchange data, the information
exchange must be coordinated to provide the greatest benefit to all participants. For
decades, SWIFT has enabled the structured exchange of financial transaction data across
26 Standard definitions for techniques of supply chain finance, Global Supply Chain Finance Forum, 2016,
supplychainfinanceforum.org.
27 Enhancement of the standard definitions for techniques of supply chain finance, Global Supply Chain Finance Forum,
2021, supplychainfinanceforum.org.

banks, giving rise to the proliferation of dozens of message types structured to best support
a given transaction category, including letters of credit and international guarantees. In
some cases, other enterprises have adopted these standards through Trade for Corporates,
a SWIFT service offering a single channel for exchanging standardized corporate-to-bank
trade data. A corporate entity of any size can, for example, apply to its bank for a letter of
credit or guarantee and receive an advice from its bank.
Recently, fintechs have proposed new data models to interact with their new trade platforms.
Some of these alternatives are based on blockchain technology. As another report published
by McKinsey has highlighted,28 trade finance makes a fitting application for blockchain,
especially in the standard representation of data. As trade finance becomes more
sophisticated in terms of products, services, and digital interconnectivity, a common, uniform
data model spanning all products, channels, and events becomes more crucial for ensuring
full interoperability.
A useful case study is the International Swaps and Derivatives Association’s Common
Domain Model (ISDA CDM), which created a standard representation for transactions and
products, enabling firms to develop interoperable and scalable automated solutions. Over
time, firms in the derivatives market each established their own unique data structures.
Rather than conferring commercial advantage, this disconnect resulted in the continual need
for firms to reconcile their trade activity. Shared standards enabled the automation of this
task, generating valuable efficiencies.29 The trade ecosystem will similarly benefit from the
harmonization of all data sets pertaining to trade finance transactions, with the end goal of
increased visibility and transparency. A unified data model acts as a bridge between different
ecosystems, allowing the contextualization of data sources across multiple services and
providing a foundation upon which data can be consistently used, combined, and correlated.
A more recent example is the Commercial Data Interchange (CDI) launched by the Hong
Kong Monetary Authority (HKMA) in June 2021 as one of the major initiatives under its Fintech
2025 strategy. CDI is a consent-data infrastructure that allows MSMEs to share their verified
data with financial institutions for the purpose of trade and investment finance lending. A
pilot is expected by the end of 2021 with a focus on commercial data to facilitate banks’ use of
alternative credit scoring. Broader success of the CDI will depend on active participation from
stakeholders, including the banking industry and sector-specific data providers.
Standards for trade finance APIs

APIs have evolved into an efficient means for core participants in the trade ecosystem to
interact. Such code is embedded seamlessly into millions of websites, enterprise resource
planning (ERP) systems, and mobile devices, among other means, revolutionizing the way
participants transact and access information. These interactions will become far more
beneficial, however, as APIs employed for trade finance are standardized.
This may happen in one of several ways. API standards can be advanced by regulations,
as was the case with the Payments Service Directive 2 (PSD2), the purpose of which was
to increase pan-European competition and provide a level playing field among banks and
nonbanks. It could also result from a bottom-up industry initiative such as the DCSA case
previously discussed (see page 23), in which parties agreed to use standardized APIs to
exchange electronic bills of lading. These approaches can converge: for instance, PSD2 did
not explicitly define the technical coding of the API but instead paved the way for banks to
agree on API standards to use for payment execution or the exchange account information.
28 Brant Carson, Giulio Romanelli, Patricia Walsh, and Askhat Zhumaev, “Blockchain beyond the hype: What is the strategic
business value?,” June 2018, McKinsey.com.
29 “ISDA Common Domain Model,” ISDA, October 14, 2019, isda.org.

This has resulted in the creation of API working groups—including The Berlin Group, STET,
and Polish API—to define the standards necessary to comply with PSD2 regulation.
At present, trade finance lacks a standard set of APIs to support its various services. As a
result, some banks have defined their own proprietary B2B API catalogs to connect their
enterprise to clients for the execution of trade finance transactions. If those clients wish to
connect with another bank, they may need to devote additional cost, time, and resources to
integrating those systems. In addition, technology providers and B2B trade platforms are
adding their own API standards for their own proprietary trade products. This has resulted in
the increase of API integrations that could otherwise be avoided through the standardization
of trade finance APIs.
There is a clear sense of urgency in the market, as evidenced by a recently published
McKinsey survey of API development in transaction banking.30 More than 40 percent of banks
surveyed cited the lack of API standards as their main challenge to further developing an
API strategy. In the same study, several trade banking services, including invoice financing,
supply-chain finance, factoring, and documentary trade finance, were deemed to have the
greatest potential for growth in the API space over the next three years, by a factor of 2.5 to
almost 8, compared with current API deployments.
3. Develop blue books and identify guiding principles for improved

collaboration among trade finance ecosystem participants
Significant road remains ahead before broad adoption of current and future standards are
embedded into the day-to-day transactional flow of participants in the trade ecosystem.
The wider adoption of standards alone will not be sufficient; in numerous instances, trade
players will benefit from applying certain best practices or outsourcing certain commoditized
activities complementary to core trade transactions.
A third role for the interoperability layer would be to work as a global trade finance think tank
in which trade participants can incorporate recommendations and achieve economies of scale
that were previously unthinkable. An important pillar in reconceiving the trade ecosystem
is the creation and use of blue books and best practices—compendiums of information,
recommendations, templates, and processes to achieve further efficiencies. Though fully
harmonized standards or regulations across all countries or even across broad groups may
prove infeasible, such information sharing can achieve some of the same goals by adding
clarity and fostering greater consensus across given segments of market participants.
Another potential role for an interoperability layer spans the three areas defined in the top
layer of Exhibit 6: blue books for trade finance processes and workflows, best practices for
sustainability, and guidelines for setting and operating shared utilities.
Blue books and workflows for trade finance processes

Blue books can enable the dissemination of common rules across different functions (legal,
technical, operational) and geographies. Even if not always legally binding, such common
practices trigger further economies of scale. In this regard, market participants will benefit
from the deployment of proven processes created by industry associations or even private
networks.
30 Alessio Botta, Nunzio Digiacomo, Reema Jain, Prakhar Porwal, Giulio Romanelli, and Adolfo Tunon, “From tech tool to
business asset: How banks are using B2B APIs to fuel growth,” October 2021, McKinsey.com.

For instance, in the Asia–Pacific Trade Facilitation Report 2019,31 the UN Economic and
Social Commission for Asia and the Pacific (ESCAP), and Asian Development Bank have
identified a set of more than 50 trade facilitation measures based on best practices to
streamline trade finance in the region. Their focus is on cross-border trade and MSMEs, which
according to the report are the most vulnerable to trade uncertainty. The report predicts
that implementation of the proposed measures could lower trade costs enough to more than
offset current tariffs.
An interoperability layer, through its many trade organizations and evangelists in the industry,
would be positioned to document and disseminate blue books and best practices for global
interoperability. This guidance could include established and widespread practices, as well as
recommendations for optimizing trade finance processes and workflows based on the latest
technological advancements, promoting a continuous evolution of the industry’s service
levels. Guidelines and best practices could address the following areas:
— Interactions with B2B trade platforms and marketplaces, explaining platform and
marketplace archetypes, the role they play, and how to leverage their capabilities.
— AI technologies, especially in the domain of natural-language processing, which are
currently being applied by fintechs and technology providers, for example, to reach nearly
100 percent automation in the processing of documentary business transactions.
— Omnichannel for superior digital client interaction, where guidance could be provided
on web portals, ERP/API, and mobile—as well as for emerging and future channels such
as the IoT and virtual reality.
— Workflows for credit assessment based on real-time data, as closing
the $1.7 trillion financing gap and fostering the inclusion of MSMEs, particularly in
emerging markets, will require a substantial transformation of credit processes and
workflows. An interoperability layer could provide a framework for commercial banks,
credit insurance companies, ECAs, and institutional investors that shortens the credit
assessment process and increases its accuracy.
Best practices for sustainability in trade finance

Public and private corporations have increasingly embedded sustainable finance32 in
their principles, setting specific targets for companies to meet in order to deliver the
measurable sustainability expected by their stakeholders. Investing with environmental,
social, and governance (ESG) performance in mind has led to global sustainable investment
now topping $30 trillion.33 These targets and investments are part of the effort that 195
countries committed to in 2015 at the UN General Assembly, where they agreed to address 17
Sustainable Development Goals (SDGs) by 2030.
The trade finance community realized that it had an important role to play in meeting these
goals.34 This is when sustainable trade finance products acquired a new dimension, and the
agendas of financial institutions, ECAs, and trade organizations became more focused on
sustainability objectives. Demand for new variations of trade products has increased, and
many such solutions already exist. For instance, sustainable shipment letters of credit enable
31 Asia–Pacific Trade Facilitation Report 2019, September 2019.

32 “Sustainable finance involves making investment decisions that consider not only financial returns but also environmental,
social and governance factors.” Ming Chun Tang, “Sustainable finance 101: How to mobilize funds for the planet,”
Landscape News, June 14, 2021, news.globallandscapesforum.org
33 The Organisation for Economic Co-operation and Development has defined ESG as a “set of sustainable principles that
companies set up and adopt for the global well-being.” Investment data from Witold Henisz, Tim Koller, and Robin Nuttall,
“Five ways that ESG creates value,” McKinsey Quarterly, November 2019, McKinsey.com.
34 See, for example, the ICC’s Global Export Finance Committee Sustainability Working Group white paper, Sustainability in
Export Finance, ICC, September 2021, iccwbo.org.

discounted financing for agricultural trade that meets sustainability standards, and letters
of credit can be qualified as “green” if they are linked to projects (photovoltaic modules, for
instance) aimed at mitigating climate change. In some sustainability-linked supply-chain
finance programs, suppliers are rated against a set of guidelines, with those achieving a given
threshold receiving financing at preferable rates. The adoption of sustainable trade finance
should also encourage financial institutions to establish a new trade sustainable asset class
to institutional investors. Also, SWIFT recently announced that its KYC Registry will become
the first global utility to integrate the ICC’s Sustainable Trade Finance Guidelines on customer
due diligence and has already been adopted by more than half of its member financial
institutions.35
These promising trends will face inevitable challenges. Today, the definition of what qualifies
as “green” remains inconsistent, for instance, and there is not yet a clear taxonomy for
sustainable trade. The lack of market standards and guidelines for the creation of new
trade asset classes still poses a significant constraint, and further efforts will be required
to drive wider adoption of the KYC Registry. An interoperability layer could contribute to
the coordination and implementation of critical elements of the trade finance sustainability
agenda, helping to close gaps in the trade finance market, including the taxonomy of trade
finance sustainable products and archetypes of investment and finance practices.
Guidelines for setting up and operating shared utilities

Shared utilities can be structured as (profit or not-for-profit) organizations specializing in the
provision of services where a pooling of resources and knowledge provides more effective
outcomes than those achievable by individual market participants. A fundamental attribute
is often a focus on nondifferentiated services, in which there is little to no benefit from users
offering unique features or methodologies. A trade participant operating in several countries,
for example, may find it convenient to leverage a utility specializing in digital identity, rather
than independently tracking the differences and the pros and cons across various registrars.
The concept of shared utilities is not new, but the advancement of digital infrastructure
and advances in data analytics, networks, and standards are poised to accentuate
their importance. A 2019 McKinsey study determined that banks could, by transitioning
nondifferentiated activities to modular industry utilities, improve their cost-to-income ratios
by 200 to 400 basis points and their return on tangible assets by 60 to 100 basis points.36 A
long-standing example is that financial institutions have benefited from engaging companies
specializing in cash transport rather than each maintaining its own armored-car fleet and
bearing related (and duplicative) maintenance and security costs. Similarly, some banks have
opted to outsource the acquiring and processing functions of their credit card business to
utilities solely dedicated to scale and efficiency in those areas.
An interoperability layer could help trigger a proliferation of shared utilities capitalizing on
the standardization and portability of common protocols. PSD2 is a clear example of a similar
event that spawned such industry response in many European countries, giving birth to a new
and thriving market of industry utilities focused on providing gateway services, which became
a precursor of today’s API-based open banking ecosystem.
We anticipate that companies—both fintechs and established firms—will become interested
in the provision of services to a new digital trade ecosystem, generating economies of scale
and benefiting the market overall. We further envision competition across multiple entrants on
35 “Swift and ICC collaborate to drive sustainability in trade finance,” SWIFT, 2021, swift.com.
36 The last pit stop? Time for bold late-cycle moves, Global Banking Annual Review, October 2019, McKinsey.com.

a decentralized basis in several areas where portability of identity and data can play a key role.
The following are examples of potential industry utilities that would be enabled and powered
by standards, blue books, and guiding principles issued and scaled up by an interoperability
layer:
— Real-time trade credit risk assessment, at either the company or transaction level.
Market participants employing these services would retain accountability for the
underlying risk; the information sources, calculations, and models would be outsourced to
a shared utility.
— KYC and anti-money laundering, the underlying processes of which are primarily based
on accessing data from a common pool of sources. The expansion of digital identities,
standards, and digital documents presents an opportunity to realize scale benefits in this
nondifferentiated service.
— Global digital identity, which could guide market participants to various global providers
of identity and their use cases. For example, a company operating globally may wish to
leverage a service that unequivocally identifies a company and its shareholders, allowing
faster and more secure onboarding.
— API gateways for value-added services, addressing an emerging market need. As more
trade-related services become available in API format, banks and other financial service
providers will aim to incorporate such services into their client journeys. For instance,
many logistics players offer tracking services through APIs. Market participants could
benefit from the use of one-stop gateways providing a single point of access to the broad
market of such API providers.
An interoperability layer not only could facilitate trade finance but also could improve the
performance of participants in the global trade ecosystem. The next section outlines the
benefits of an interoperability layer for each segment of participants as they proceed through
a potential three-stage rollout plan.

Section 3
Building a
consensus for global
interoperability

The recent proliferation of networks, digital standards, and digitization efforts are
constructive steps toward trade finance modernization and inclusion, and they validate the
belief that market participants—especially banks—recognize the importance of enhancing
trade finance efficiency. The industry’s current challenge is to build on this momentum,
scaling toward a unified goal of reconceiving the global trade finance ecosystem.
Every category of market participants would benefit from implementation of the vision
proposed in section 2. This section highlights many of those benefits for each category. It
then proposes a road map across three time phases and explains why the degree of market
success will be a function of how well the participants are able to work together.
Benefits of a revamped ecosystem flow to all categories of ecosystem

players
While participants in the global trade ecosystem can expect to realize benefits from
implementation of the proposed vision, those benefits will differ somewhat depending on
the category of participant (Exhibit 8). The following description of benefits applies to the
participant categories introduced in section 1.
Exhibit 8
An interoperability layer would deliver substantial

benefits to each participating segment.
Buyers and suppliers Logistics providers
Increased access to liquidity Optimized processes
Reduced transaction complexity and optimized Reduced costs
costs
Enhanced security
Greater access to B2B markets
Financial institutions Trade organizations

Expanded credit capacity Support for foundational
principles
Broadened revenue streams
and value-added services
Streamlined processes and
reduced costs
Technology providers Governments and regulators

Accelerated time to market Update regulators with new standards
Extended market geography Help stimulate local economies
Enhanced monitoring and control

Buyers and suppliers
Perhaps the greatest potential benefit from a reconceived trade finance ecosystem will flow
to the end users (both buyers and suppliers) of trade finance instruments. This is in alignment
with the outlined core objective, which is to address the significant challenges faced by
enterprises, especially MSMEs, and to increase inclusion in the trade finance ecosystem.
Financial inclusion—comprising products and services that are accessible and affordable
by all businesses—is a fundamental pillar of a healthy trade ecosystem. While the barriers
to financial inclusion have been a longtime problem, a stronger coordination of all trade
participants that is further leveraged by technology and standards will be a critical step in
closing the MSME financing gap. Solving buyer and supplier pain points will, by extension,
generate opportunities for the ecosystem players supporting them. Benefits for this segment
would include increased access to liquidity, reduced transaction complexity, optimized costs,
and greater access to B2B markets.
Increased access to liquidity. A more interconnected trade system will enable participants
to access a wider and more transparent range of information, better equipping credit
providers with the means to assess a trade transaction’s risk, whether local or international.
Access could translate into significant gains in funding availability across the trade finance
spectrum, which would address the existing structural funding gap described earlier. This
increased liquidity would result from banks allocating more funds to trade finance and from
the participation of institutional investors, as described in the benefits to financial institutions.
Reduced transaction complexity and optimized costs. With the standardization of
formats, digitization, and utilities such as KYC, all enterprises—particularly MSMEs, given
their bandwidth constraints—stand to gain in efficiencies. Interoperability will help these
enterprises streamline onboarding processes across various platforms. In addition, data
sharing will lead to quicker and better KYC decisions, and the elimination of paper submission
requirements will reduce administrative burdens.
For example, for many years, supply-chain finance programs have been constrained by
cumbersome paper processes and a lack of agility, which increased time to market. Today,
however, the newfound popularity of trade platforms is enabling companies to onboard
suppliers in a matter of minutes and to access a wide range of financing options extending
beyond traditional institutions. In addition, standardization and interoperability—for example,
fulfillment of KYC requirements through a shared industry utility—could make it easier for
buyers and suppliers to access new, fully digital trade finance services.
Greater access to B2B markets. A more digitally interconnected and open trade system
will allow companies to engage with additional clients and suppliers, both locally and
internationally. This is particularly relevant for MSMEs, enabling them to trade in additional
geographies and/or with client segments that were previously out of reach.
Financial institutions
Although 40 percent of global trade is currently supported by bank-intermediated trade
finance, coverage is not uniform across countries or segments, particularly in developing
countries and with MSMEs. A full deployment of the interoperability layer would bring a
substantial structural change to the financial industry as a whole, specifically benefiting
existing providers (primarily banks) while also attracting much-needed new credit capacity
to the industry (from entities such as institutional investors), drawn by added transparency,
access to technology, and regulatory support. In addition, the ecosystem could bring
additional revenue streams and value-added services while making the processes more
efficient and cost effective.
Expanded credit capacity. Financial institutions, institutional investors, and credit insurance
companies are often constrained by regulatory and legal factors, lack of information,
cumbersome processes, and limited access to trade finance assets due to technology
constraints. This proposed vision should activate several levers enabling financial institutions

to increase their credit capacity, whether by increasing investments in the trade ecosystem
or reallocating more capital to this asset class. For instance, with the availability of more
transparent data about participants and transactions, regulators and financial players will be
in a better position to collaborate on reassessing existing regulations, potentially unlocking
extra financing capacity to cover much of the estimated $1.7 trillion funding gap that exists
today.
This could become a renewed opportunity to accelerate the ongoing collaboration and
dialogue already under way between private entities and regulatory authorities. An example
of past collaboration is the Basel Committee on Banking Supervision, which has adopted
changes in how the Basel I and II capital adequacy framework treats trade finance.37 Ongoing
increases in digitization, data availability, and transparency should similarly inform the
dialogue surrounding future regulation.
Institutional investors are another important source of potential new financing. Until now,
institutional investors have participated in this market at relatively low levels, in part because
trade finance is not widely recognized as an asset type. With the introduction of common
standards, advancements in securitization, market transparency, and technology, however,
this could rapidly change. More specifically, a global product taxonomy would help create
a common language for investors to understand the various flavors of trade finance across
different providers and countries/segments. A platform for securitizing trade receivables
could make the asset class interesting to institutions and family offices that are looking
for safe returns and would create more liquidity. Uniform data models and standardized
technology would offer increased transparency into trade finance assets, making it more
practical for investors to participate in the secondary market at a relatively low cost per
transaction. In another example, a standard global database of commodities—serving as a
benchmark for various activities—could reduce the hesitance institutional investors currently
display toward trade finance. The proposed standardization and digitization will make it easier
for ECAs to reflect a wider portion of the country (and potentially counterparty) risk related to
trade finance, which would unlock risk-weighted assets and create additional credit capacity
and capital reallocation.
Broadened revenue streams and value-added services. Along with their financing role,
financial providers play a key role in the provision of ancillary services to facilitate trade
transactions. Financial institutions often bring together buyers and suppliers through their
proprietary systems—or, increasingly, via B2B digital platforms and marketplaces—helping
each to meet the ideal counterparty with whom to execute a transaction. KYC is an essential
prerequisite for buyers and suppliers seeking to establish commercial relationships and
therefore another opportunity to provide a value-added service. An interoperability layer
could facilitate the expansion of company identifiers and/or the syndication of KYC best
practices, providing a boost to the trade ecosystem.
Streamlined processes and lowered cost. Standardization has been a key barrier to the
digitization of trade finance processes; once it has been achieved, more banks will be in a
position to justify embarking on digital adoption journeys. Financing providers will greatly
benefit from the wider adoption of standards, both existing and new, as well as from following
broadly recognized blueprints.
A similar logic applies to institutional investors looking to connect with several originate-to-
distribute platforms simultaneously. This approach will allow financial providers to spend less
resources on implementation and to connect with more players under the same standard.
37 Treatment of trade finance under the Basel capital framework, Bank for International Settlements, October 2011, bis.org.

Safeguarding the trade finance business, which is already hampered by high cost-to-income
ratios, requires improving operational efficiency. Selected global and forward-thinking
banks have completed technological transformations in some areas of trade finance.
Those institutions have realized cost base improvements of 30 to 40 percent as a result of
deploying technologies such as natural-language processing, robotics, and smart contracts.
For example, a McKinsey analysis showed that blockchain in invoice finance could lower
cost-to-income ratios by as much as 15 to 20 percentage points, significantly increasing the
profitability of invoice financing.
Other players in the trade ecosystem

A revamped global trade finance ecosystem would also deliver benefits to many other
groups of players. For technology enablers, the adoption of standards for the exchange of
data, forms, or documents could greatly reduce time to market for services and products,
and accelerate integration with clients or linkages to trade platforms. In addition, an
interoperability layer—combined with the proliferation of cloud technology, APIs, and lower-
cost hardware and software—could help expand affordable access to the trade ecosystem for
MSMEs.
Standardization of trade documents or communication protocols will also bring a new level of
efficiency to logistics players. For example, trade standards for eBL would optimize processes
and reduce costs related to the use of paper documents. According to the DCSA, an adoption
rate of just 50 percent eBL would save the industry €4 billion per year.38 In addition, digital
iterations of bills of lading or other shipping documents can be digitally signed and encrypted,
reducing security concerns over forged, manipulated, or stolen documents.
For trade organizations, an interoperability layer would serve the broader mission of enabling
members to develop to their full potential in serving new markets and clients. The ICC has long
promoted simplification and wider adoption of standards. For example, its Digital Standard
Initiative is considered one of the cornerstones for an interoperability layer (see sidebar “The
International Chamber of Commerce’s Digital Standard Initiative”).
Finally advances in standardization, digitization of processes, and electronification of forms
are likely to streamline governments’ and regulators’ tasks, which in turn could ease the
administrative burden on those being regulated.
One aim of an interoperability layer would be to provide existing and future standards. Some
standards—those related to product taxonomy and data models, for example—might not
require specific regulation because there are already sufficient incentives for adoption
(for example, cost optimization, client experience). In these cases, banks or other market
participants could organize and scale up adoption. However, governments and regulators
could help promote other standards—for example, digital trade documents, recognized
company identifiers—through legal frameworks. For instance, the governments of Bahrain
and Singapore were early adopters of MLETR—enabling market participants to embed a set
of standard digital trade documents into their processes.
In some cases, governments and regulators could coordinate regionally to encourage
adoption of standards. As an example, the African Export-Import Bank and the African
Continental Free Trade Area promoted the Pan-African Payments and Settlement System
(PAPSS)39 to improve capacity for cross-border transactions and accelerate the growth of
intra-African trade.
An interoperability layer could also help governments and regulators stimulate local
economies and exports by addressing the often-underserved needs of MSMEs, which
38 “DCSA takes on eBL standardisation, calls for collaboration: $4 billion estimated in potential annual savings at 50%
adoption rate for container shipping industry,” Hellenic Shipping News, May 5, 2020, hellenicshippingnews.com.
39 “Afreximbank and AfCFTA announce the operational roll-out of the Pan-African Payment and Settlement System
(PAPSS),” press release, Afreximbank, September 28, 2021, afreximbank.com.

typically represent a prominent share of the economy.
Finally, more transparent and accurate sources of data would provide governments and
regulators with a framework for enhancing existing controls. For example, standards would
enable countries to assess existing import-export processes and serve as a source of
information for updating policies.
A road map to global interoperability

Realization of an interoperability layer would be possible only with the coordination and
commitment of the broad community of trade finance participants. Implementing the target
vision would represent a historical milestone in a market that has not substantially changed
for decades or, in the case of some trade practices, even for centuries.
Given the complexity of the market, this effort may require five to ten years to reach a level at
which most participants will realize its full benefit. However, some of an interoperability layer’s
building blocks could be deployed on an accelerated path, leveraging work that has already
been done by trade organizations. This would require a very strong commitment, especially
from banks, but would allow many players to experience tangible benefits of this report’s
target vision in a much shorter time frame—two to three years. This will only be possible
through strong governance spanning a wide range of industries and geographies, sharing a
set of common objectives and goals.
The proposed road map aims to help develop and scale up a set of standards, blue books,
best practices, and shared utilities, with an objective of cementing the next wave of the trade
ecosystem evolution. It is structured to accomplish this in three phases (Exhibit 9).
Phase 1: Mobilize the existing trade finance ecosystem

The first and one of the most critical objectives of phase 1 would be to establish proper
governance, as this can stimulate stronger coordination and execution of an interoperability
layer. Once this task is accomplished, the body “overseeing” an interoperability layer
could quickly move forward to promote existing standards to achieve market scale while
also identifying any critical missing elements and creating the road map for the rollout
of new standards and blueprints necessary for subsequent phases. This phase may last
approximately 12 to 18 months and will include the following actions:
Establish governance model for an interoperability layer. In a market encompassing
multiple players, industries, and countries, close coordination is indispensable. It will be
essential to leverage the resources of the various trade organizations and trade participants
currently contributing to building a more cohesive global trade environment.
An interoperability layer’s governing body could have the dual role of coordinating the
promotion of existing trade standard initiatives and contributing to the development and
dissemination of new standards to fill the gaps. For the former, the main actions would
be spreading knowledge and adoption of existing standards while establishing dialogue
across various markets and organizations. For the latter, a governing body could guide the
development of new standards, blueprints, and recommendations. Equally important, it would
leverage existing and new channels for wider adoption of new standards.
As various governance models may be plausible, the first task should be to determine which
model is most practical and the best fit for an interoperability layer’s mission. The ultimate
model may range from a fully centralized one, in which an existing or new organization
takes responsibility for leading the effort, to a distributed model of different degrees, or
consortiums, in which various organizations accept a lead role on the different components,
under the oversight of a steering committee.

Exhibit 9
The road map for implementing an interoperability

layer proposes a ten-year journey in three phases.
1 2 3
12–18 months 2–3 years 5–10 years
Mobilize the existing trade finance Develop the reconceived Scale up global efforts, with
ecosystem ecosystem and begin scaling up solutions addressing the needs
adoption of all market participants
— Establish governance model for
the interoperability layer — Finalize missing elements of the — Support development of shared
interoperability layer (eg, blue utilities, based on blue books and
— Launch detailed action plan to
books, best practices) standards
accelerate adoption of standards
for digital trade enablement — Promote broader adoption of — Scale up global adoption of the
the chosen standards applying reconceived ecosystem by both
— Finalize critical missing elements
a supply-side approach (starting the supply and demand sides
for trade finance interoperability
with banks)
foundations
— Build a road map to drive adoption
of the key standards
The first step in bringing this vision to reality has already been taken. Over the past year,
the ICC has—through the ATF—secured contributions of expertise, ideas, and efforts from
many trade participants, which have shaped the proposed model. The next step is for these
parties to align with other trade participants to contribute to the development, execution, and
promotion of the target vision.
Launch action plan to accelerate adoption of standards for digital trade enablement.
As we have discussed in this report, the accelerated adoption of existing standards by
banks and their technology providers is a critical step toward the success of a potential
interoperability layer. The benefits in terms of revenue growth, operational efficiencies,
and credit risk control are clear. The plan for this accelerated adoption could lead off with
globally recognized company identifiers and standards for digital trade documents—the two
building blocks identified as digital trade enablers in Exhibit 6. Globally recognized company
identifiers would allow participants to unequivocally identify a party for commercial, risk,
and compliance purposes. In a world where thousands of companies are created each day,
particularly in the MSME segment, this building block is critical. Broader standardization for
digital trade documents through the MLETR standard is essential to helping all parties realize
the agility and cost efficiencies they desire. In this first phase of the implementation plan,
financial services industry forums and multilateral organizations such as trade associations

could play an important role in spreading the message regarding the importance of digital
trade standards adoption. Also, an interoperability layer could issue and disseminate interim
best practices for digital trade standards adoption that the entire ecosystems can start
adopting pending potential enactment in local law.
Finalize critical missing elements for trade finance interoperability foundations. Laying
foundations for trade finance interoperability should involve the building blocks shown in
the middle layer of the logical architecture in Exhibit 6. This trade finance interoperability
foundation has three building blocks:
1. Trade finance product taxonomy. As discussed in section 2, the Global Supply
Chain Finance Forum has released a taxonomy focused primarily on open account
trade documents. It does not, however, address the other important pillar of trade:
documentary trade documents. The ICC has historically addressed the different elements
of documentary credit via its Uniform Customs and Practice for Documentary Credits
(UCP 600 being the most recent release, in 2007). However, this does not constitute
a full taxonomy for documentary products. Therefore, one of the initial efforts for an
interoperability layer’s governing body to consider should be completion of a full taxonomy
of trade finance products, so participants can unequivocally and consistently refer to
names and features of trade products.
2. Uniform trade finance data models. The trade ecosystem would benefit from
harmonization of all data sets pertaining to trade finance transactions, with the end goal of
increased visibility and transparency. A unified data model would act as a bridge between
ecosystems, allowing for contextualization of data sources across multiple services. It
would serve as a foundation upon which data can be consistently used, combined, and
correlated.
3. Standards for trade finance APIs. As described in section 2, APIs have become a
core conduit for communication between corporate and banking systems. Over the
past few years, adoption of API standards in the payments space had grown. While
the development of APIs for trade is at a far earlier stage; only a handful of banks have
embarked on full production. This could be an ideal moment for the formation of working
groups, similar to the Berlin Group, and the UK’s Open Banking Implementation Entity
(OBIE), each of which has embarked on standardization initiatives for APIs in the cash
space. An initial target could be to develop APIs for the eight techniques recognized in the
Supply Chain Taxonomy and for the three documentary credit products (letters of credit,
documentary collection, and guarantees).
In addition to these interoperability foundations, given how fast the market is moving, we
would suggest prioritizing in this first phase also the development of best practices in
sustainability for trade finance, including critical items such as green letters of credit based on
sustainable development projects, sustainable linked supply-chain finance programs, or the
adoption of a new trade sustainable asset class to institutional investors as a way to expand
the market to MSMEs and other players. All these best practices, introduced in section 2,
should be prioritized, given the relevance for the global economy. Equally important will be
consideration of the recommendations in the recent ICC white paper Sustainability in export
finance.40
Build a road map to drive adoption of the key standards. In addition to establishing the
governance model and promoting the adoption of an initial set of existing and new trade
standards, it will be necessary to create a deeper and more detailed road map for the
next phases. Besides defining and adopting standards, the road map should include best
practices, recommendations, and guidelines.
40 Sustainability in export finance, ICC, September 2021, iccwbo.org.

In a first phase, an interoperability layer might work closely with existing industry initiatives
such as the ICC’s Digital Standards Initiative (DSI) and its Sustainability Working Group. For
instance, the accelerated adoption of existing trade foundation standards aligns with the
ICC’s DSI effort (see sidebar “The International Chamber of Commerce’s Digital Standard
Initiative”), which promotes the unification of digital standards efforts among market
participants, and advocates for adoption of electronic documents and expansion of standards
to enable information sharing across the trade value chain. Such industry initiatives share
goals and are jointly motivated to avoid duplication of effort. A road map will be of great
importance, because the success of the implementation of current or new standards will
depend on how key players embed these elements into their operating processes.
Phase 2: Develop the reconceived ecosystem and begin scaling up

adoption
A second phase, which could extend over two to three years, would focus on the completion of
the missing elements of an interoperability layer elaborated in section 1 and promote broader
adoption of the standards, mainly on the supply side (that is, financial institutions). Main
activities would include the following:
Finalize missing elements of an interoperability layer. Once existing standards have
been developed and implementation of others has begun, it will be important to continue
the work of finalizing the elements initiated in phase 1 (for example, blue books, best
practices, and guidelines), as they are the building blocks for trade finance interoperability.
They are essential for the trade market as a whole, because they provide the framework for
platforms and participants to operate. Another necessary element is guidelines for setting
and operating shared utilities, which, as the next section explores, provide the next level of
efficiencies for certain core processes, such as credit risk assessment and onboarding of
buyers and suppliers onto the digital identity solutions described in section 2.
Promote broader adoption of the chosen standards, applying a supply-side approach.
Broader adoption of standards would be critical at all phases of the road map but particularly
in this phase, as most standards and guidelines will be expected to be either released or
close to release by this stage. Among the trade participants, the idea is to continue working
primarily with financial institutions on the supply side for the adoption of these standards.
Additional groups of participants would also play a critical role in this phase; for example, B2B
trade marketplaces would adopt the standards to integrate financial institutions, buyers, and
suppliers; nonbanking financial institutions would join the ecosystem at scale and push new
liquidity into the system; and regulators may enable accelerated implementation through
large-scale adoption of some standards. Toward the end of this phase, it is expected that all
the participants in the trade finance ecosystem will start capitalizing on some of the benefits,
including expanded credit capacity, reduced transaction complexity, and extended market
geographies.
Phase 3: Scale up global efforts with solutions addressing the needs

of all market participants
If phases 1 and 2 cement the building blocks for a whole deployment of trade standards and
adoptions, mainly on the financial side, this would create a solid base from which to reach the
last phase, estimated to take place in five to ten years. This phase includes the introduction of
shared utilities and the global scale-up from the supply and demand sides, which effectively
include the entire trade ecosystem.
Support development of shared utilities, based on blue books and standards. Shared
industry utilities—deployed at a local, regional, or global level—would drive economies of
scale and deliver the data required to complete certain parts of the trade value chain. For
example, financial institutions would benefit by outsourcing certain administrative or noncore
activities that today consume a good share of cost and time across the trade value transaction

Reconceiving the global trade finance ecosystem
chain. The cost, bandwidth, and complexity devoted to the trade processes could be managed
downward by shared utilities specializing in these areas. Likewise, the standardization of data models,
API, and compliance or credit risk blue books would allow for the broad adoption of such capabilities
in the same way that cash transportation, merchant acquiring business, or clearing connectivity have
been separated from the back offices of most banks. The shared utilities promoted and inspired by an
interoperability layer could bring a new frontier of efficiencies, much as standards for containers or new
means of transport have brought efficiency to the global trade ecosystem.
Scale up global adoption of the reconceived ecosystem by the supply and demand sides. One of the
critical success factors for this action will be how the different trade participants have strengthened their
links individually and through their respective business networks. In addition, by this point, the platform
economy should have matured, and we should be witnessing in five to ten years a far more cohesive
trade ecosystem, where digital islands could be considered an experience of the past. Leveraging both
supply and demand sides could create a network effort where adoption of standards, best practices, and
blue books would rise exponentially.
Exhibit 10 offers further details of the elements, levels of adoption, and phases that would be required
for the consolidation of the future trade ecosystem.

Exhibit 10 Develop critical elements Accelerate adoption Scale up
New enablers are needed at each phase to support

the journey.
Phase 3
Phase 2 5–10 years
Phase 1 2–3 years
12–18 months
Existing enablers
Build up Support introduction and scale-
various archetypes up of shared utilities based on
Guiding principles Guidelines for setting up and
and models guidelines developed
for trade finance operating shared utilities
interoperability
Best practice for sustainable Sustainability in export finance (ICC, 2021) Prioritize development given Stimulate applicability for Scale up global adoption from
trade finance relevance for global economy additional business cases both supply and demand sides
Blue books for trade finance Asia–Pacific Trade Facilitation Report (ESCAP, Develop recommendations for Expedite cross-border adoption
processes and workflows 2019) core trade finance processes of recommendations, and finalize
for all market participants development for additional
processes
Trade finance Standards for trade finance

interoperability APIs
foundations
Uniform trade finance data Cat. 7 MT standards (SWIFT, since 1973 with Promote
models various updates) broader adoption mainly on
Complete gaps and execute on
the supply side (bank and tech
Commercial Data Interchange (HKMA, 2021) remaining elements
providers)
Trade finance product Standard definitions for techniques of supply

taxonomy chain finance (GSCFF, 2016) Scale up global adoption from
both supply and demand sides
Digital trade enablers Global recognized company Legal Entity Identifier (GLEIF, 2014)
identifiers
Decentralized Identifier (W3C, 2021)
European Digital Identity Accelerate adoption
(EC, expected 2022) working mainly on the supply side (banks and tech providers)
Standards for digital trade Model Law on Electronic Transferable Records

documents (UNCITRAL, 2017)
Electronic bill of lading (DCSA, 2019)
Source: ATF Analysis Source: ATF Analysis
42 Reconceiving the global trade finance ecosystem Reconceiving the global trade finance ecosystem 43
Conclusion

The foreword highlighted the challenges the industry is facing—a $1.7 trillion gap in trade
finance availability exacerbated by the impact of the COVID-19 pandemic.
At the same time, the industry is facing a historic opportunity to cement its progress achieved
so far, to build new capabilities, and most importantly, to launch a new wave of cooperation
across its multiple participants for the benefit of all parties.
Many participants are already working on this. Fintechs are using blockchain and analytics
to uplift end-user experience and create more visibility into trade finance assets. Banks are
adopting natural-language processing and APIs to automate trade finance at scale. Logistics
players have started to digitize their bills of lading. Trade associations are developing well-
designed standards for digital trade that, despite not having reached high volumes of
adoption, could constitute the basis for an accelerated path toward global interoperability.
In this context, the ICC promoted the Advisory Group for Trade Finance, whose independent
and novel research confirmed the complexity of the trade ecosystem in terms of the demand,
offers, and market participants. For this reason, the first section of this report describes the
needs of the ecosystem’s core participants and facilitators.
At its core, as described in section 2, this proposal aims to address these needs by bringing
into a single framework the three key missions of an interoperability layer: to promote
adoption at scale of existing standards; to design and disseminate additional standards and
protocols; and to develop blue books and identify best practices to improve collaboration
among trade participants. Underpinning these initiatives is a recognition of the efforts of
trade organizations and other participants to date.
Technology is already having an impact through the digitization of trade processes in financial
institutions, the proliferation of B2B digital platforms, and the integration of institutional
investors and logistics providers into the trade ecosystem. However, technology alone cannot
deliver a global trade ecosystem that serves all participants. What is required as well is strong
coordination and commitment from the entire trade community. To this end, this report has
laid out multiple potential benefits for each trade finance participant and an implementation
road map of actions to mobilize, develop, and scale up this global effort.
Trade finance sustainability represents a key component of today’s trade finance ecosystem
and has significant potential to foster the inclusion of MSMEs and the reduction of the trade
finance gap within this decade. Therefore, the development and promotion of standards,
recommendations, blue books, and best practices in this terrain will be essential for the
effectiveness of the reconceived ecosystem.
Governance, collaboration, and execution are critical success factors that will ultimately
determine the timing and the effectiveness of the initiatives proposed in this endeavor, as well
as many others that will inevitably arise through innovation of all trade participants.
The overarching goal of the proposal described in this report is to build on the collaboration
already gaining momentum among participants in the trade ecosystem, to cover gaps in
existing operating models, and, most importantly, to promote the wider adoption through
further coordination. If cooperation and execution throughout the global trade finance
community can be inspired, the joint objectives—and an equitable distribution of benefits—
are well within reach.

Additional
research

The International A first important step of this initiative was the
creation of a comprehensive knowledge center in
Chamber of July 2021. The knowledge center aggregates the
relevant information and best practices for each of
Commerce’s Digital its key audiences—namely, company executives,
policy makers, and developers—with the goal
Standard Initiative of fostering a wider adoption of the standards.
For its initial phase, the DSI encourages market
participants to adopt a set of standards, including
The Digital Standard Initiative (DSI), launched by those developed by the ISO (for example, for
the International Chamber of Commerce in 2020, currency, country codes, messaging, and date/
is a collaborative cross-industry effort to advance time), company identifiers (including LEI and DID),
the standardization of digital trade. The DSI is and digital trade documents exchange standards.
an outgrowth of various like-minded initiatives, The last category of standards so far adopted
many of which focused on digitizing processes includes TradeTrust, a set of standards developed
through the development of open trade and under the leadership of the government of
technology standards. In addition to promoting Singapore to support the exchange of electronic
interoperability, these efforts would ultimately lead trade documents; Digital Negotiable Instruments,
to greater economic inclusion as well. a framework developed by the International Trade
The DSI operates under the guidance of a and Forfaiting Association; the Model Law on
governance board consisting of policy makers Electronic Transferable Records (MLETR); and the
from governments and international organizations, Electronic Bill of Lading, an open-source standard
including the government of Singapore, the by the Digital Container Shipping Association.
Asian Development Bank, and the World Trade Finally, the DSI encourages other organizations
Organization. and market participants to develop and reach
The DSI aims to unify and digitize the global consensus on new sets of standards, examples of
trading system by adhering to these principles: which include electronic warehouse receipts to
(1) reuse rather than re-create, (2) engage provide proof of ownership for goods stored for
standard-setting bodies, (3) consider all available safekeeping, uniform rules for processing of digital
approaches and technologies, (4) prioritize trade transactions, and digital trade attestations
accessibility to all trade participants, and (5) for cross-border taxes.
ensure appropriate capabilities within relevant
industries are leveraged to overcome challenges.

How regulation On the operational side, the Commission aims to
promote the adoption at scale of new technologies
and technology are through use of innovations such as big data. It
also promotes the comprehensive use of financial
reshaping trade technology to help firms actively participate
in mechanisms for credit information sharing,
finance in China such as bank tax interaction and bank-business
cooperation, and organically integrates public
enterprise-related data with internal financial
Given its outsize share of activity in trade (roughly data. Further, the Commission intends to deepen
30 percent of global flows) and continued high cooperation between banking and insurance
growth, the Chinese business ecosystem is companies, exploring innovative insurance-policy-
poised to play a prominent role in the design pledged financing products for small and micro
and success of any enhancement to the global enterprises. This construct is expected to involve
trade finance industry. For instance, recent giving insurance institutions incentives to develop
measures by Chinese regulatory authorities export and domestic trade credit insurance,
designed to encourage broader and more inclusive while banks can enjoy greater latitude to provide
lending to small and micro enterprises41 are trade finance services with the backstop of such
promoting nontraditional sources for credit risk insurance.
assessment while in parallel introducing new data
A broader goal is to revitalize the allocation
protections.42
of financial resources, leveraging financial
In particular, China’s Banking and Insurance technology and credit information to enhance
Regulatory Commission has established lending capacities. This may involve tactics such
objectives of significant growth in loan funding and as asset securitization and other transfers of
number of borrowers.43 To meet the goals, the five loan assets from the originators’ books, opening
largest Chinese banks are expected to maintain capacity for additional rounds of small and micro
growth rates of around 30 percent for small and financing. Also, the disposal of nonperforming
micro loans. Reaching these ambitious targets will small and micro loans will be strengthened through
require the activation of a set of different levers, write-offs and transfers in accordance with risk
both commercial and operational. controls and regulations.
On the commercial side, some banks are The combination of these initiatives could spawn
introducing financial-inclusion-focused key completely new approaches to delivering financial
performance indicators, such as number of first- services to small and micro enterprises. In this
time borrowers, and tying a portion of internal respect, partnership platform models involving
performance appraisals to these measures fintech players and leading commercial banks
at the local branch level. Based on regulatory are being deployed nationwide. These include
recommendations, banks are also implementing collecting data from participating companies;
incentives to remove long-standing friction points. leveraging innovative credit evaluation, digital
For instance, in internal funds transfer pricing technologies, and supply-chain finance solutions;
models, they are assigning at least a 50-basis- and revitalizing existing credit resources through
point benefit for inclusive loans made by large and an originate-to-distribute model—all of which
joint-stock banks.44 could improve small and micro financing. These
41 As per the policy published by China Banking and Insurance Regulatory Commission, the inclusive Small & Micro loan has been defined
as “total amount of credit granted to a single borrower not more than RMB 10 million.”
42 On November 1, 2021, China’s Personal Information Protection Law (PIPL)—a comprehensive set of rules around data collection and
protection—took effect. Applicable to the country’s citizens and all companies and individuals handling their data, the PIPL aims to
protect the rights and interests of personal information, regulate personal information-processing activities, and promote the rational
use of personal information through data localization measures, restrictions on cross-border data flows, and continued surveillance and
law enforcement powers. See “Personal Information Protection Law of the People’s Republic of China,” The National People’s Congress
of the People’s Republic of China, August 20, 2021, npc.gov.cn.
43 “China to further optimize financial services to SMEs,” State Council, People’s Republic of China, April 26, 2021, english.www.gov.cn.
44 Refers to banks with combined features of a general partnership and a publicly traded company.

nascent networks are already ramping up. example, is a blockchain-based international trade
For example, CSCC Finance, a trade finance and finance service platform designed to reshape
ecosystem launched in 2015, has registered more the international trade ecosystem. Another key
than 120,000 businesses and through October platform is the central bank’s blockchain trade
2021 has handled over 13 trillion renminbi ($2 finance platform backed by the People’s Bank
trillion) of cumulative transaction volume and of China, which has established cross-platform
over 280 billion renminbi ($45 billion) of factoring interconnection with Hong Kong’s eTradeConnect
financing.45 to facilitate cross-border trade and finance
services.
The Chinese trade finance market is also seeing
innovation in the blockchain arena. Trusple, for
45 CSCC Finance, yljr.com.

Detailed insights with underdeveloped infrastructure and
bureaucracy. Key pain points for them include
from our demand- repetitive processes and paperwork with little
optimization for repeat procedures.
side research — Traditional treasurers (low tech readiness,
low access). Suppliers in the group called
traditional treasurers focus mostly on the near
The ICC and Fung Business Intelligence, with
term and known aspects of the business, with
McKinsey as knowledge partner, conducted
limited ability to restructure supply chains or
interviews with over 60 suppliers (mostly MSMEs),
navigate new global market spaces. Orders are
large buyers, and subject-matter experts across
often brokered by a large intermediary and are
16 emerging-market countries and multiple key
likely to be built around a single, undiversified
industry sectors to deeply understand CEOs’ and
market structure. Supply-chain processes are
treasurers’ trade-related needs, primary pain
mostly managed manually, with digital banking
points, behavior, and the business impact of the
not yet prevalent. Such businesses often lack
existing trade finance market gap. We conducted
access to international capital markets (due
ethnographic research via one-on-one sessions
to insufficient capital) and have very limited
tailored to each interviewee’s context and driven
negotiating power. As a result, they rely largely
by a structured interview guide featuring open-
on private capital for bridge financing.
ended questions. These were followed by a series
of ideation workshops to enrich the understanding — Trade business managers (moderate tech
of challenges faced and to explore the framework readiness and access). With a typical focus on
for potential solutions. consumer goods (for example, garments) for
large US- and Europe-based customers, trade
Supplier personas business managers tend to have more FTEs
yet relatively low revenue (about $20 million).
Across geographies, suppliers were segmented
These companies often own real estate, have
based on two key criteria: technological readiness
sufficient access to secured loans, import
and access to financing and markets, as depicted
raw materials from abroad, and communicate
in Exhibit 3. While no such generalizations can be
with their banks mainly in person or via email.
expected to provide a precise picture, the analysis
The trade cycle generally takes three to four
revealed five broad personas,46 which may help
months. Exports are mostly by sea, usually
inform strategies to migrate all varieties of MSMEs
with a 30-day payment schedule. Uncertainty
to a next-generation ecosystem.
regarding payment terms and customers’
— Active entrepreneurs (low tech readiness, creditworthiness complicates factoring, and
low access). Active entrepreneurs lead high local-currency interest rates (10 to 20
companies that are typically the smallest percent) make investment capital prohibitively
among the five cohorts (up to 120 FTEs and expensive, leaving CEOs and treasurers to view
$10 million annual revenue) and transact with equity as the most logical source of funding.
relatively small, regional customers and larger
— Prudent business owners (low tech
global businesses using the services of local
readiness, high access). Suppliers classified
banks. They typically focus on scaling the
as prudent business owners focus mainly
business and modernizing production lines.
on larger US retailers and brands. Their
Goods transfers are mainly by sea, using local
businesses have a well-established structure
ports, with time-consuming trade cycles—lead
and strong relations with banks and customers
times of two to three months from inquiry
but face competition from low-cost regions
to start of production and 50 to 80 days for
and pressure to relocate production to other
raw-material ordering and transport. While
countries for cost and geopolitical reasons.
they are looking for digital solutions and new
These suppliers are often interested in
business opportunities, they often struggle
46 Personas are aggregate portraits of users based on ethnographic research. They illustrate how target users differ, and they encourage a
people-centered approach.

upgrading equipment, automating production MSMEs we interviewed choose not to use
processes, and enhancing staff training. The third-party providers of financing solutions
trade cycle takes roughly five to ten months outside of banks. Feedback from the research
from order to payment receipt, with goods also affirms the complexity of existing
shipped by sea. Prudent business owners relationships between banks and MSME
typically consider trade finance products suppliers, however. Even where trade finance
provided by institutions to be insufficiently products are actively marketed, many MSMEs
developed or overly costly, limiting viable find it difficult to secure loans due to perceived
options. onerous terms (for example, annual revenue
thresholds and/or collateral requirements).
— New-generation CEOs (high tech readiness
As a result, many MSME owners express a
and access). New-generation CEOs head
preference for financing their operations with
medium-size corporations (with about 4,000
personal funds to avoid debt altogether.
FTEs, making them the largest of companies
in these five cohorts) built on a diversified — Transaction complexity. Trade finance
consumer base of high-growth and large, involves intricate workflows spanning multiple
stable businesses. Leaders are focused on parties, often causing significant manual
keeping the company’s balance sheet as debt- work and the exchange of paper documents
free as possible. Management approaches (for example, bills of lading, purchase orders),
investment decisions cautiously and typically resulting in high operational costs and elevated
employs letters of credit or insured shipments credit risk. The divergence of regulations
to mitigate risk. Companies led by new- across jurisdictions and differential risk
generation CEOs have developed robust characteristics across trade finance products
processes to monitor the creditworthiness often give rise to unduly complex and opaque
of their own customers but can encounter processes. For smaller companies that have
difficulty in assessing the credit risk of non- limited back-office resources and already face
customer prospects. High domestic borrowing bandwidth constraints, the effort required
rates can render investment opportunities to overcome such administrative hurdles can
infeasible. be insurmountable, so these companies lose
expansion opportunities.
Trade finance challenges — Access to B2B markets. Suppliers are looking
For the five personas and the MSMEs they lead, for new buyers and new revenue sources,
the demand-side research identifies three broad yet they often struggle to gain access to
categories of trade finance challenges: new clients because they lack knowledge
— Access to liquidity. Many MSMEs find or capacity, or they face other challenges in
themselves either lacking the necessary target B2B markets. Because of the economic
collateral or unable to meet risk assessment impact of COVID-19, some businesses have
criteria required to leverage trade finance faced payment delays from buyers and
services. For their part, banks may doubt they inflexible payment terms from their own
can employ nontraditional means of assessing suppliers, causing gaps in working capital that
supplier risk, partly because of their limited can inhibit the servicing of existing clients, let
access to enterprise-related historical data. alone new ones.
Many regions’ alternative finance markets The research behind this report confirms that
lack maturity, resulting in higher interest country and sector factors play significant
rates and capital costs for exporters. The roles as well. Challenges across countries can
vital areas of know your customer (KYC) vary based on a given country’s regulatory and
and onboarding also remain major MSME economic environment, as well as the state of local
challenges, complicated by the fact that banks’ technological infrastructure and the complexity
analysis of MSMEs is mostly based on static of documentary trade processes. For instance,
documentation rather than live data. while Chinese MSMEs report good levels of
Banks continue to play a critical role for liquidity availability, thanks to long-standing bank
MSMEs as a source of trade finance and relationships, Thailand’s MSME suppliers reported
payment services in emerging markets. Most greater liquidity issues stemming from extended

payment terms and rising raw-material prices amid to financial providers employing risk assessment
extensive collateral requirements and complex, mechanisms that can lead to MSMEs being
paper-intensive processes. India’s MSME categorized as high-risk. Buyers identified the
participants noted similar challenges, including a following supplier pain points:
shift from letters of credit to open account terms in
— Payables finance. Some large retailers have
response to cost factors and lack of bank flexibility
negotiated payment terms as long as 150 days,
on covenants.
and their success has forced intermediaries to
COVID-19’s economic impact has varied from similarly prolong terms to their vendor base,
one market or industry to another. In apparel, including MSMEs.
for example, many small export-oriented
— Capital costs and fraud. In the commodities
manufacturers expressed that they have suffered
trade in particular, buyers cited fraud as
more than their larger counterparts from delayed
the source of a further liquidity crunch.
payments and a lack of orders. For manufacturers
Some MSMEs, already facing higher costs
of equipment and components, the increasing
of capital, were priced out of the market as
cost of raw materials and the volatility of currency
banks restricted trade finance lending in
markets have often been challenging during the
commodities due to overexposure and a wave
pandemic, despite growing demand for their
of fraud and defaults.
products. In the consumer electronics sector, even
large buyers report poor visibility into supplier — Digital documentation. Digitized invoice
pipelines. This inefficiency has prompted many financing has greatly streamlined transaction
buyers to require that suppliers maintain additional complexity for some businesses, but where
buffer inventories, further increasing the need banks are not yet equipped to process digital
for working capital throughout the supply chain. transactions, even the biggest buyers have
Unanticipated supply-chain dependencies with struggled to digitize. Digital transactions are
downstream MSME vendors, as well as some often further inhibited by the requirements
tier-one suppliers facing financial strains, have of government counterparties, especially
contributed to the widely reported multi-month customs.
production delays for critical product lines. In general, suppliers seem comfortable with
sharing company data if it contributes to improved
Supplier pain points, according workflow. In interviews, they expressed awareness
to buyers that financial institutions might collect a broad
On the other side of these trades, workshop array of data. They asked that, in return, the
interviews with a diverse group of buyers indicate institutions use the data to make documentation
broad recognition of the difficulties faced processes faster and more efficient.
by MSMEs across industries—particularly in
accessing low-cost capital, which buyers attribute

© Copyright November 2021
McKinsey & Company
International Chamber of Commerce
Fung Business Intelligence

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In collaboration with

I Reconceiving the global trade finance ecosystem

Reconceiving the global trade finance ecosystem II

III Reconceiving the global trade finance ecosystem

Reconceiving the global trade finance ecosystem 1

2 Reconceiving the global trade finance ecosystem

John W.H. Denton AO Victor K. Fung

Bob Sternfels Marcus Wallenberg

Reconceiving the global trade finance ecosystem 3

Reflecting the needs

Reconceiving the global trade finance ecosystem 5

The market structure of global trade finance

6 Reconceiving the global trade finance ecosystem

The estimated $5.2 trillion annual

Reconceiving the global trade finance ecosystem 7

Overview of trade finance participants

8 Reconceiving the global trade finance ecosystem

The global trade finance ecosystem can be

Buyers Technology Suppliers

Trade Logistics Govern-

Source: ATF analysis

Reconceiving the global trade finance ecosystem 9

10 Reconceiving the global trade finance ecosystem

Reconceiving the global trade finance ecosystem 11

Key insights from the demand-side research

12 Reconceiving the global trade finance ecosystem

The research identified five personas

Personas Active Traditional Trade business Prudent New-generation

Source: Demand-side research based on interviews with 60 treasurers in 16 countries

Reconceiving the global trade finance ecosystem 13

14 Reconceiving the global trade finance ecosystem

A vision for network

Reconceiving the global trade finance ecosystem 15

From ‘digital islands’ …

Simplified representation of the current trade

Participant connected Trade finance networks Banks

Source: ATF analysis

16 Reconceiving the global trade finance ecosystem

Reconceiving the global trade finance ecosystem 17

Simplified representation of the proposed

Company identifier Credit assessment

Participant connected Trade finance networks Banks

Source: ATF analysis

18 Reconceiving the global trade finance ecosystem

Reconceiving the global trade finance ecosystem 19

Much of the logical architecture of an

AI use cases Financing practices Credit risk assessment

Omnichannel offering Green TF definition Global digital identity

... ... ...

Trade finance Standards for trade finance APIs

Trade finance product taxonomy

Source: ATF analysis

20 Reconceiving the global trade finance ecosystem

An interoperability layer would have a three-part

1. Promote adoption at scale of existing trade finance standards

Globally recognized company identifiers

Reconceiving the global trade finance ecosystem 21

Standards for digital trade documents

22 Reconceiving the global trade finance ecosystem