Last Friday the 17th of November, our very own in-house expert, Alex Gray, was invited to give a coaching session to the Vietnam Banking Academy, as part of the Academy’s annual Trade Finance Competition, where The London Institute of Banking (LIBF) was a professional sponsor. In his role as Head of Trade and Transaction Banking at LIBF, Gray talked about the evolving trade finance landscape, and what the future holds for the industry.
He started his presentation with some interesting statistics from the latest ICC Global Trade Finance Survey: only 64% of the banks asked can say that they have a digital strategy, and only 17% have found the solutions to increase efficiency. This data was collected just before the pandemic, and since then obviously, the world has moved on. However, the general consensus has not changed considerably. This means that the tools adopted by banks are barely delivering. Given the current unstoppable pace of technology development, why are the tech solutions implemented in trade finance not working properly? Why do only two-thirds of the banks surveyed have a strategy in place?
The main barriers, banks say, are internal capabilities (61%) and regulations (51%). Regulators are still quite sceptical about the accuracy of results provided by machines, and in many countries, Vietnam as an example, banks themselves are also unconvinced that AI can perform a job that they deem “could only be done by human”.This scepticism is completely understandable and not entirely unfounded. The job of a Trade Finance Officer cannot be replaced by AI - rather, it is enhanced.
Take TradeSpeed, Complidata’s flagship trade finance solution for example. While the tool can help spot patterns, and optimise repetitive tasks such as screening against a long sanctions list or extracting data from documents and comparing the contents to requirements in a letter of credit (LC), Trade Finance decision-makers are still needed to verify these checks and make calls based on the information and reasoning provided by the AI. To convince regulators, banks must opt for solutions that provide explainable results: reasoning for each hit or anomaly detected.
Complidata’s TradeSpeed does just that. In his presentation, Gray took the tool as an example of tech solutions with exceptional and pioneering results in explainability. In our Sanctions screening module, each hit that TradeSpeed identifies comes with a risk rate, as well as a full explanation of why the score was generated. This is crucial not only for deciding on the next steps to take, but also for proving to auditors and regulators that the bank is doing what they are supposed to be doing. TradeSpeed is also recognised by our current clients as being perfect for new hires or as a training guide for users.
After the presentation, there were many insightful questions. A notable one came from a student, who talked about the current situation with Vietnamese SMEs, where they are still opting for cheaper, less secure modes of payment, such as payment collection or telegraphic transfer, instead of the LC. The question she had was: what can banks do to encourage SMEs to use LCs, or other more secure methods? In response, Gray stated: “The world over, it is the SMEs that keep the economy going, and they need more support. When we talk about the trade finance gap, we reckon it to be about 2 trillion dollars. Companies are not getting the financing they need. Some countries, such as Turkey, actually mandate banks to give financial support to SMEs, to enable them to use the LC, which is expensive due to them being labour-intensive. Vietnam can look into this.”
As one of the fastest growing economies in the world, Vietnam faces challenges on how to “safety-proof” that growth. For an economy characterised by the large number of SMEs involved in exporting and trade, Vietnam needs to pay closer attention to protecting those small businesses, and provide more and better support, to set them on the path to scaling up and growth.
“We are at a tipping point, where things are moving forward.” Throughout the presentation, Gray often referenced his experience working in HSBC at the beginning of his career, with huge procedure books and digitisation largely out of reach. This is no longer the case. Young bankers are no longer interested in doing a job where they have to process hundreds of pages of documents by hand every day, which is tedious and exhaustive. Banks need to take action, not only to remain attractive employers but also to keep pace with the continually evolving trade finance industry.