InsightsAddressing the constraints to wider adoption of digitalised trade

16.12.2020| The innovator

Trade finance stalwart Michael Vrontamitis is a recognised industry leader, having carved out a 25-year banking career at Standard Chartered, most recently as head of trade for Europe and the Americas. Although currently on a short career break, having left the bank earlier this year, Vrontamitis continues to serve as an ICC advisory board member and co-chair of the ICC working group on digitalisation in trade finance. In this next instalment of Marco Polo’s ‘The Innovator’ series, he shares his thoughts on the reforms necessary to enable the future of trade – and where his own future in the market might lie.

Q: A lot of the progress made in trade digitalisation in the last year, since the outbreak of the pandemic, has been around ensuring the ‘business as usual’ environment. What will become of the more disruptive initiatives that have emerged over the last few years as we move into the recovery phase?

Vrontamitis: Back in April, we [the ICC trade finance digitalisation working group] published a paper on the rapid response measures that trade finance banks were taking at the time. What it showed was how critical it was to be digital, particularly in terms of business continuity. Almost every bank I have spoken to has seen an uptick in use of their existing technologies – those which they have been investing in over the last five, 10 years. 

There was a survival instinct, so many financial institutions took a number of short-term measures. Workarounds were put in place, which included things like signature by attached email. It wasn’t very secure, but it got around putting a wet signature on a piece of paper, which obviously you couldn’t do at the time. What we need to do now is focus on making these digital processes much more robust, and more secure. 

We are now seeing companies introducing electronic signature software or networks – whether it’s DocuSign or equivalents – into their workflows. These solutions were there before but, for whatever reason, didn’t garner the necessary attention or investment. Now they’re seen as critical. 

But this is not going to replace the long-term solutions, or the platforms, which the industry has been rolling out. If anything, it will start to accelerate the need for these solutions, and in that sense the crisis has provided a tipping point. The question is which ones are going to survive?  

Q: It’s been said that governments need to do more to encourage the use of digital documentation rather than paper-based processes. In what ways can policymakers boost the digital agenda? 

Vrontamitis: The ICC issued a roadmap for digital trade aimed at governments, the private sector, industry experts and standard-setting bodies. We outlined actions to be implemented across three pillars to drive an inclusive Covid economic recovery, especially in terms of SME growth. Although we first published a paper on this in 2018, the measures are exactly what we need today. 

The first key element is legal infrastructure modernisation, which is about cutting red tape across borders, and national law reform. The second is around the creation of interoperable digital standards for trade, and that’s what the Digital Trade Standards Initiative (DSI) has been set up for. This forms part of the work of the ICC – to build consensus and align resources. The third element is digital transformation, where we need the industry to play a part in this ongoing innovation. Now is not the time to be cutting investment into digitalisation because it’s going to be so critical to business processes going forward. If you’re beyond the survival stage, where most businesses were at the early stages of the pandemic, and you’re involved in international trade, then the digitisation of the underlying documentation is going to be a critical part of the future.

“If you’re beyond the survival stage, where most businesses were at the early stages of the pandemic, and you’re involved in international trade, then the digitisation of the underlying documentation is going to be a critical part of the future.”

Michael Vrontamitis, Trade Finance and Banking Leader

Q: Are we seeing any of the recommendations that the industry has been making – for some time now – playing out in any meaningful way?

Vrontamitis: This focus on digital trade and the need to enable the digital transfer of ownership has, for me, gone from a bunch of advocates at the back of the hall, where you can’t quite hear them, to everyone in the hall realising that there’s a political and business imperative to ensure that it happens. There’s been a mindset shift, and we’ve seen a number of governments, including Bahrain, India, Algeria and Singapore, taking the lead in this space.

There are a few different approaches to the way governments are looking at this. The first is a top-down approach through free trade agreements, where specific language is agreed around digital trade. We saw this first in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, in which signatories agreed to adopt UNCITRAL legislation on electronic signatures, and paperless trading. And we’re now seeing it in the Regional Comprehensive Economic Partnership, which was signed a few weeks ago. 

The second approach to legal reform is more of a bottom-up method, and this is around seeking to amend specific legislation rather than developing more comprehensive revisions. This is the approach that the UK is taking, and the ICC is working very closely with the legal authorities in the UK to do so. For example, in the UK, both bills of lading and bills of exchange, or promissory notes,  must be paper, and current policy guidance comes from the Bills of Exchange Act of 1882, which has some really outdated concepts of possession that do not include intangible assets. But because updating legislation is time consuming, stakeholders in 2020 are instead seeking to bring into effect dormant electronic communications provisions of the 1992 Carriage of Goods by Sea Act, which would introduce the ability to transmit bills of lading through electronic communication. It’s like a roundabout way to get to where you need to be, but a relatively short alternative. Legal reform of negotiable instruments in the UK, one of the world’s leading trading nations, will have a considerably broad impact: a lot of international trade is governed by English law, even if there’s no commercial connection to England. 

Q: The ICC has identified the need for the creation of open trade and technology standards to promote interoperability among the numerous blockchain networks and technology platforms that have entered the trade and trade finance space, and to this end has launched the DSI. Tell us more about the need for standards and interoperability? What other initiatives are you working on?

Vrontamitis: It’s really clear that even if we solve the legal challenges, without clear standards on things like data and technology between different stakeholders in a trade transaction then we’re still going to be faced with the problem of digital islands.

Think of it like a USB port: if everyone understands how to design a USB port, then we could all plug into one another’s computers, and build peripherals around it, no matter the computer operating system. 

The launch of the DSI under the ICC was a combination of a lot of people’s work, most recently the consensus building that was done by those involved in the Marco Polo project and the Marco Polo Network team, which played a critical role in moving the industry forward. 

The idea is to now bring together stakeholders from all the different industries, which is really important to enable us all to connect to each other. 

The ICC digitalisation working group is there to support the broader initiative: some of the work that we’ve done, such as the ICC digital trade roadmap, might migrate over to the DSI, because it’s a much broader piece of work, and tackles the wider industry.

Going forward, the working group will be much more focused on trade finance. The kinds of things that we’re working on include keeping the electronic rules eUCP and eURC up to date, and completing work on the Uniform Rules for Digital Trade Transactions, now in its fourth draft, which we plan to publish in 2021. We’re also about to publish fintech adoption guidelines, which will hopefully enable banks to connect more easily to fintechs, as well as some guidance on automation or use of Artificial Intelligence under UCP. Additionally, we’re going to be launching a number of pilot APIs for trade finance, which will involve coming up with a set of standards for solutions like guarantees and letters of credit to start with. 

Q: We often hear that banks and corporates have lengthy decision-making and onboarding processes, which can stifle efforts to achieve real progress in digitising trade? What could – and should – these players be doing to ensure continued advancement?

Vrontamitis: This falls into what we’re doing at the ICC in the fintech adoption stream. Banks are traditionally not very transparent about what their requirements are in order to onboard fintechs, and especially if those fintechs operate in the cloud or with blockchain. This is largely because a lot of these technologies are relatively new, and banks have high standards when it comes to information and data security – it’s a very regulated industry, and it takes time to work out and streamline the end-to-end processes. But not being able to communicate that well to fintechs means it’s pretty frustrating for both sides – the bank’s product management team and the fintech. 

Because the world is changing, solutions like Marco Polo are absolutely critical for banks to be able to continue to compete. If banks don’t adopt new technology and ways of working, they’re going to get left behind and lose market share. Regulators need to be educated too, and I think we’re beginning to see some of the fruits of the labour as banks are increasingly being given the go-ahead to do what most other industries have been doing for quite a while now. 

The ICC’s work in the fintech stream is really about trying to shed light on best practice in this space, to enable banks to move faster, because otherwise they will get left behind. 

“Because the world is changing, solutions like Marco Polo are absolutely critical for banks to be able to continue to compete. If banks don’t adopt new technology and ways of working, they’re going to get left behind and lose market share.”

Michael Vrontamitis, Trade Finance and Banking Leader

Q: Bearing in mind the progress that has been made in the industry in the recent past – and the need for even more change – how has this impacted your approach to your career in trade finance? What’s interesting to you from a personal point of view? 

Vrontamitis: I didn’t plan to end up in trade, although I’m glad I’m here. I’m passionate about trade because it’s really about impacting people’s lives. A trade finance transaction drives economic activity – it allows people to get jobs and products to be made.

It’s a really interesting time for trade: the changing geopolitics, the rising power of the East relative to the West, the climate emergency, changing consumer demands on sustainability, the pandemic and the resulting fallout, the advent of the fourth industrial revolution – it’s all happening at the same time, and it’s impacting every product, every service that you buy. There are so many opportunities out there for people – both experienced industry players and new market entrants – to get involved. 

So, as soon as I’ve reduced my handicap from triple to double digits, I’m going to return to the world of trade and work in this confluence between trade, technology and sustainability. Everyone talks about the US$1.5tn trade finance gap, but the solutions to closing that gap have not been particularly systematic. I’ve been doing a lot of thinking about this and want to figure out how to help solve this problem and how to engage more people around it.

Michael Vrontamitis

Michael Vrontamitis is a member of the ICC Banking Commission Advisory Board and World Trade Board. He co-chairs the ICC working group on the digitalisation of trade finance.

Michael’s banking experience spans both wholesale and retail clients as well as investor relations, joining Standard Chartered in 1995. He has worked in Hong Kong, London and Singapore and was most recently responsible for Standard Chartered’s trade finance business with European and American-headquartered companies across sales, product, distribution, service and implementation.

Michael previously chaired the SWIFT Offshore CNY Best Practice Working Group – Cash & Trade Group and in 2014 was recognised by The Asset as The Renminbi Banker of the Year in the Industry Achievement Awards of the Triple A Treasury, Trade and Risk Management Awards.

About the author
Shannon Manders is an editorial consultant and award-winning international trade finance journalist with over a decade of experience reporting and producing print and online publications on the global trade and trade finance sector. She is also the editorial director of international trade finance publication GTR, where she has been working since 2008.