Global Trade Finance Goes Visual

Part 2 of AI and Global Trade?

So distracted have fintech mavens been with digitization that the equally viable concept of increasing the efficiency, effectiveness and security of global trade with visualization - has been neglected.

A Lot of History?

Because as Brent Staples exhorted: History is the only education. All the rest is just training.

During the late 1970s, Guy Tozzoli of World Trade Center Associates [New York City], came up with a new concept for financing global trade. The concept was of an "automated engine" to match the purchase orders of the buyer with the related invoices of the seller in a straight- through process. Matching POs and invoices in an automated fashion and insuring them against commercial and political risk, led to secure, automated settlement: the payment and financing of global trade transactions.?

Updates?

Morpheus.Network of Canada has demonstrated?that the trade documentation process can be sped up and made more economical and efficient by using QR Codes.

Since the creation of Bolero, commercial banks and insurance providers have struggled to automate global trade. This complex effort involves the integration of classic commercial banking, SWIFT; the La Huppe, Belgium-based?Society for Worldwide Interbank Financial Telecommunication, international trade finance, electronic money transfer (payments), mobile payments, logistics, commercial and political risk mitigation through ECI (Export Credit Insurance) and ECAs (Export Credit Agencies), the purchasing, insuring and discounting of insured export and domestic receivables, logistics and international law.??

European banks took the global lead in the $41 trillion annual enterprise of merchandise trade finance because of the speed of the forfaiting?(discounting without recourse to the seller) process and because the relationship with former colonies provided the banks based in these European countries access to credit information on target market country buyers - quickly.

Foundations

The agreements underlying trade transactions are based on the UN Convention on Contracts for the International Sale of Goods and the International Chamber of Commerce (Paris-based ICC) and its Incoterms - now Incoterms 2020:

Bolero, as the initial effort to automate trade transactions was known, evolved to BPO or Bank Payment Obligations:

and so-called "four-corner interoperability" utilizing the TSU or Trade Services Utility:

During the same period, trade financing and logistics in the US for both imports and exports were evolving from World Trade Center Associates to TradeCard and then GTInfor/Nexus, a privately-owned enterprise now known as Infor. I will in subsequent articles explain the limitations that this privately-owned enterprise imposes on the global scaling of U.S. energy initiatives.?

The evolution of Bolero to BPO involved SWIFT and was based on several pillars. First, a common language for communications and?communication standards had to be established.?

This common language was XML; Extensible Markup Language involving metadata (a message within a message)?as referred to in the explanation of the TSU:

The XML-related ISO?(International Organization for Standardization - from the Greek ISOS meaning “Equal”), ISO20022 and?ISO8601 (Date Standard ) were incorporated into the SWIFT digital trade platform as a "single standard that covers all business domains and end-to-end business processes."

After the XML standards were established, specific message types were created in order to facilitate the electronic or digital exchange of documents, a process which occurs manually in paper-intensive, cross-border trade transactions - with these documents for example:

Guides for the conduct of international trade and logistics were published and they evolved into Incoterms 2020:

and some 200 countries adhere voluntarily to these standards whereby “essential rules are provided for international and domestic contracts, setting out responsibilities between buyers and sellers for costs, carriers, freight forwarders and customs house brokers -- by elaborating responsibilities and risks. “

Just as importantly, a mechanism of dispute settlement through arbitration was established and administered by experts in international trade, law, customs and logistics. This was established in 1936 and continually developed by ICC. Just as the US has a national system of customs law and regulation administered by legal and customs experts and courts of law, the ICC established a system of law and regulation whereby participants in a disputed trade transaction would pay for arbitration and agree to abide by the findings of the ICC. ICC arbitration, several years ago decided 25,000 cases affecting 142 countries.

SWIFT and ICC

Communications among the principals in a trade transaction are provided with various electronic message types by SWIFT, whereby such instruments of trade as commercial import and export and guaranty letters of credit are given message types; such as the MT798. regrettably fraudsters, and specious "trade financiers" have learned the language of SWIFT and used it to scam for money. Corruption has become a major alternative to trade finance provided by banks. As a result of losses from such scams, many banks have withdrawn from global trade finance - potentially the world's largest and most fruitful enterprise:

Global trade is a very document-intensive process and the electronic digitization of shipping and financial documents was an important first step in achieving what SWIFT calls the TSU or Trade Services Utility.

Back to Tozzoli's matching engine

With Tozzoli's matching engine, adapted by SWIFT as the TSU, shipping and financial documents entrusted to SWIFT were matched with actual shipping, financial and special documents used in actual trade transactions. They were matched when documents were presented electronically or digitally on behalf of buyers and sellers, by their respective banks.?

A digital match of documents within the TSU established the basis for the paying for and settling of trade transactions by means of Bank Payment Obligations or BPO, for import and export transactions - what Andre Casterman, formerly of SWIFT, called “four-corner interoperability” - the interoperability of seller, buyer, buyer’s bank and seller’s bank.?

SWIFT's hope was that the BPO and TSU would function in place of traditional letters of credit. The presentation, matching and payment process resulted in the irrevocable settlement of trade transactions. A reconciliation was created in the event of non-matches and as a rejection mechanism against fraud.?

Disruptive Visualization?

Visualization is a revolution in global trade and global trade finance. A deep understanding of global trade provides an understanding of how technological innovation has changed the age-old global trade finance process.?

Global trade in merchandise was a $41 trillion business?last year and providing a solution to the automated processing of international trade?transactions using QR Codes will provide huge savings in the labor-intensive process of producing trade documents as well as in trade logistics and for the trade finance process itself.?

Open and Fair Trade

“Embracing open and fair trade could boost global GDP by USD10 trillion a year in 2025,” according to a major new report co-written by HSBC and Boston Consulting Group (BCG).

The $10 Trillion Case for Open Trade provides compelling evidence of the potential benefits of the evolution (visualization) of global trade as policymakers aim to help the global economy bounce back from COVID-19.

But first,?it must be clearly understood why BPO failed.?

Next: Why BPO Failed