At a time when governments around the world are seeking to gain competitive advantage and revive their economies through increased cross-border business, the UK's burgeoning financial technology sector could play a big role in helping digitise trade and solve some of these problems.
The volatility caused by the pandemic and geopolitics has been driving supply chain disruption and forcing firms to re-evaluate their business models and operating strategies. The pandemic in particular was a major catalyst for trade digitisation as it exacerbated frictions and unearthed frauds, and has motivated regulators to call for a move away from paper.
Despite lockdown restrictions easing, businesses are still facing a wide range of challenges such as the need to upgrade financial infrastructure to enable greater access to trade finance, and the need for solutions to digitise customs processes. As it stands, the law still requires trade to be based on paper documents.
Still, now is the time to digitise trade, but there are still some difficult questions to answer as a community to make this a reality. NatWest specialist Mirka Skrzypczak recently took part in a discussion with other industry thought leaders covering exactly these issues.
Let’s take a look at five of our findings in the UK’s quest to make trade digital.
1. Everyone can have a say
At the moment, English and Welsh law doesn’t recognise electronic documents as having the same legal standing as paper documents. But the authorities are trying to change this, and quickly: the Law Commission for England and Wales is currently running a consultation, garnering the opinions of all kinds of businesses on how trade can be digitised. The goal is to reach the stage where electronic documents are acceptable under UK law as quickly as possible. That’s because with other jurisdictions already moving in this direction, it’s a highly time-sensitive matter.
The consultation period is running until the end of July, and the responses will help the Law Commission to develop final recommendations for reform and a final draft Bill, which it’s aiming to publish in early 2022. In the meantime, it’s vital that as many businesses as possible provide their honest feedback so that the Commission can provide informed recommendations.
To do so, click on the following link: https://consult.justice.gov.uk/law-commission/electronic-trade-documents.
2. The UK is well placed for global leadership in trade digitisation
The UK’s fintech industry is very dynamic. It’s a great breeding ground for firms with innovative new technologies, some of which can be adopted by big institutions and backed by law. They already have experience in this area: Brexit has caused disruption to customs and documentation processes, creating opportunities for technology-led players to add value. Several UK companies are trying to solve these problems and jockeying for a leading position in that space.
Coupled with this dynamism is the UK’s reputation as a home of the rule of law. English law is globally respected, with many companies and institutions from around the world choosing to be governed by English law due to the certainty and confidence it inspires. That means we have a duty to keep up with the new technologies that everyone wants and expects.
3. Standardisation is vital
As it stands, there are still lots of digital islands using different protocols and platforms. That’s not a problem in itself, but there needs to be globally accepted standards to ensure better alignment.
It’s easy to imagine the difficulties faced by an importer or exporter managing dozens of different log-ons, passwords, security protocols and platform standards. Beyond these practical issues, digital islands also make it difficult to reduce fraud and ensure that global commerce flows seamlessly. There’s also the potential for data to be locked in individual digital islands. Trade is a cross-border process – it doesn’t happen in isolation. If data is locked in one jurisdiction or on one digital platform it becomes very difficult to access. Companies such as SWIFT are looking to ensure standardisation of identities and API protocols to overcome these problems.
4. All businesses need to prepare
With the world digitising, all trade participants need to change their mindset. Paper processes are deeply embedded for many. Businesses need to challenge themselves to recognise that digital data is on a par with paper documentation. And as we await legal reform in the UK, everyone – banks, large corporates and SMEs – need to do their homework now so they’re ready for the new trade environment.
To find out more about what you need to do, please get in touch with your NatWest representative.
5. SMEs need to prioritise
Even with the huge resources available to them, it can be difficult enough for the banks and major corporations to go digital. For SMEs it’s an even tougher ask and some are simply overwhelmed with the amount of change they need to go through.
The important thing is to prioritise. There are lots of ways that SMEs can become more efficient by digitising, but it’s difficult to know where to start. They should take a step back and look at what’s going on in the market and what their competitors are doing. If they need, rather than attempt to digitise themselves, they can seek external partners to help them. For example, fintech firm Fineon helps companies provide lenders with all the documents they need in a digital format when they’re looking for new funding.
It’s hard to imagine how firms with absolutely no digital capabilities will be able to succeed in the future. There are lots of incentives for SMEs to make the move – digitisation can help them improve their own internal processes and make efficiencies, and it could make them more resilient and help them find cheaper financing. There’s lots of help out there, including from governments, banks and digital platforms. NatWest can help by educating SMEs and pointing them in the right direction by highlighting the changes that are likely to have the biggest impact.