McKinsey Report: Reconceiving the Global Trade Finance Ecosystem [Summary & Takeaways]

Satvik Agnihotri
28 min readApr 3, 2022
Photo by Venti Views on Unsplash

Hi there,

In November of 2021, McKinsey released this report on the Global Trade Finance Ecosystem. As I was reading through it I tried to cut it down into the parts that I found most interesting and most useful, without losing specificity. Here are my summaries, takeaways, and filtration of the report.

I hope you enjoy :)


  • Financial Institutions are a critical factor of trade, with around 40% of global goods being supported by bank-intermediated trade finance. Especially important in emerging economies — where about half of the applications for trade finance loans originate from the Asia-Pacific Region
  • Gaps in coverage have been recognized for some time, particularly for the micro, small, and medium-sized enterprises (MSMEs) that serve an increasingly important role in global trade
  • While more capital is becoming accessible, rejection rates for MSMEs are running at 40%. A 2017 World Bank study indicated that 65 million MSMEs were credit-constrained.
  • MSMEs face greater challenges in accessing financing and, by extension, more complexity in market access and documentation.
  • Larger Multinational corporations have begun to leverage digital technologies that promise improved Supply Chain efficiency and transparency. The fragmented nature and limited scale of MSMEs, however, makes it difficult for them to capitalize on such opportunities.
  • 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).
  • 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.
  • 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.
  • Banks, large corporations, and MSMEs have embraced digitization with varying degrees of urgency, creating a gap between participants in the analog and digital worlds.
  • 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. The definition of “green” is ambiguous.
  • MSMEs — as well as all other trade participants — should have access to trade and financial services from a wide pool of global providers. This would include the establishment of recognized digital identities for each participant, the incorporation of secure credit and trading data, and full visibility and process tracking.
  • By integrating emerging technologies, automation, standardization, and a new set of metrics to evaluate the industry actively, we can bring in institutional investors and more innovation to create systemic change across the supply chain.
  • 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

Section 1: Reflecting the needs of all participants in the trade finance ecosystem.

Market Overview & Structure

  • The global trade finance market covers a value of ~$5.2 trillion in 2020 (~6% of global GDP). This translates to $40 billion on the supply side(~2%) of overall wholesale banking revenue.

This includes 3 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. This accounts for roughly 85% of total trade finance volume and by and large is governed by SWIFT.
    Problems include a significant number of paper-based documents (for example, bills of lading), typically with nonstandard formats, as well as complicated compliance and regulation such as embargoes, blacklists, and anti-money-laundering rules.
  2. Buyer-led Finance includes products that enable both buyers and suppliers to optimize working capital for cross-border trade through programs sponsored by buyers. Ex. Payables Financing — buyer takes out a loan to pay what it owes to the supplier, extending the payment terms, and suppliers who accept a discount are paid sooner. The category accounts for < 10% 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.
    In the past ten years, a few dozen fintechs exclusively focused on this business have emerged, further enabling financing for MSMEs. Large corporations are increasingly signing up for this to create resilient supply chains. Reduced financing costs free up liquidity, and have also attracted MSMEs to opt into early payments through these programs, proving to be especially strong during 2020’s liquidity crunch.
  3. Supplier-Side Finance includes products that address sellers’ financing needs by anticipating the liquidity resulting from commercial transactions such as factoring, receivables discounting, and forfaiting. This accounts for ~1/3 of global trade finance volumes when considering cross-border flows. This can be more complicated than receivables accounting, as it requires the formal transfer of credit (and balance sheet assets) from the client to a bank.

Given this complexity, costs to serve supply-side banks are variable from country to country. 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.

Source: Capital IQ; FCI Annual Review; ICC Trade Finance Survey; IMF Direction of Trade Statistics; McKinsey research

The Asia-Pacific region generates the largest share (55%) of trade finance volume. Asia tends to be about 90% documentary business while EMEA and Americas have somewhat lower penetration at 80–85% indicating higher adoption of buyer-led or supplier-side finance.

Overview of Trade Finance Participants

In general, there are two types of trade participants:

  • Core Participants — participants active in any trade transaction. This includes enterprises, NGOs, public entities, or any other organization playing both buyer and supplier roles, financial institutions, technology providers, and logistics provider
  • Facilitators — parties not directly related to the trade transaction but critical to facilitating trade through policies and regulations. This includes trade organizations, governments, and regulators.

Source: ATF Analysis

Core Participants

  1. 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.

MSMEs are a high priority for governments around the world. A primary constraint on MSME growth and international expansion is access to financing.

Participation in trade marketplaces is essential to the growth of buyers and suppliers. This means there needs to be a technical interface between participants that allows the marketplace to be interoperable and adheres to certain standards and protocols. Otherwise, the time and expense of connecting to each marketplace can become prohibitive.

Buyers and suppliers are also looking to operate as cost-efficiently as possible. Cross-border trade document processing and payment can add up to a lot and any improvements in these areas by leveraging new technology and alternative payment corridors will generate significant benefits in companies’ overall cost profile.

2. Financial Institutions

In a trade finance ecosystem, financial institutions provide liquidity and 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 including

a. Corporate banks actively intermediate trade transactions. Recent competitive pressures have pushed them to be more efficient and offer more effective services. Banks verify a client’s identity and assess the suitability and risks involved with maintaining a business relationship. Banks also keep track of constantly evolving regulations where they operate and maintain rigorous control and compliance. They also scan the market for 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.

b. Institutional Investors are active participants in secondary markets, buying assets sold by banks to create the capacity to issue further credit. Trade finance has desirable attributes (typically low default rates, attractive yields (compared with traditional instruments), short-term durations, and self-liquidating disposition), however, Institutional Investors have not embraced trade finance. Trade Finance markets tend to be illiquid and nontransparent for reasons including technology limitations, resulting in the lack of transparent electronic market — and limited risk-assessment expertise among institutional investors.

c. Credit Insurance Companies facilitate the overall functioning of the trade ecosystem by insuring businesses accounts that could suffer losses from debtor insolvency. The premium for credit insurance reflects the credit risk of the insured entity. In addition, they can help financial institutions manage credit exposure and regulator capital allocations. The challenge for credit insurers is to gain access to and process increasing amounts of accurate information to inform more precise underwriting.

d. 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. These entities play a key role in international trade by absorbing country risk, often above the generally accepted level by private insurers and lenders, particularly in developing countries.

3. Technology Providers

Technical innovations such as advanced optical character recognition, blockchain, APIs, and Natural-Language-Processing have emerged in the space creating an ideal environment for the formation of digital trade marketplaces that bring together players in the ecosystem.

IoT also provides an increasingly important role for data collection in trade. The full potential of the technology is still untapped since most implementations are running at low volume or are still in the proof-of-concept stage.

We can break down the types of companies that participate in the trade technology space into three rough categories:

a. Established Software Companies — provide core technology systems that banks have relied upon for decades. Although trade is a paper-intensive business, there is increasing digitization of trade processes. This includes most companies transforming their core platforms into open architecture, cloud technology, and API-enabled systems. We expect that this technological evolution will continue and the proliferation of standards can further boost this moment.

b. B2B Trade Marketplace — platforms competing to connect trade participants (buyers and sellers) while offering a wide range of trade finance services such as procure-to-pay and electronic invoicing, supply-chain finance, dynamic discounting, and receivables financing. Financial institutions will work with multiple trade platforms to gain exposure to market segments beyond their client base.

c. Digital Disruptors — (primarily start-ups) developing innovative solutions like data analytics, simplifying digitalization of documents, and vessel tracking technology, often integrating emerging technologies. The challenge facing these companies is to integrate effectively into the trade ecosystem via partnerships with banks and trade marketplaces.

4. Logistics Providers

Anyone offering services to help get products to their destination efficiently. Besides moving goods, these providers also facilitate the flow of information (including documents) that are essential to the financing of trade flow. They track cargo, communicate with exporters and importers, interact with port and customs authorities, and coordinate with warehouses and local distributors to make sure goods get to their final destination.

Standardization and digitization is most beneficial to them. Increases in digitization are also pointing towards 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.


Trade Organizations

Trade organizations tend to be at the local, regional, and global levels to provide support to trade participants. Their role is shaping the rules and associations of trade finance while providing and defining the technical standards that are crucial to making trade finance efficient.

Governments and regulators

Governments and regulators play an essential role in creating market regulation and fostering inclusion. Governments can also be especially important in taking an active role when there are significant market gaps, such as during the Covid-19 pandemic, by filling in gaps left by the private market and mitigating the impact of the crisis.

Key Insights from the Demand-Side Research

Summarized, there are about three broad categories of trade finance challenges facing MSMEs.

  1. Access to Liquidity — Many MSMEs find themselves either lacking the necessary collateral or unable to meet the risk assessment criteria required to leverage trade finance services. Additionally, banks do not feel ready to employ nontraditional means of assessing supplier risk, due in part to their limited access to enterprise-related historical data. [Does the data already exist? Or is it a lack of access to information that has not been collected?] The lack of maturity in many regions’ alternative finance markets can often lead to higher interest rates and capital costs for exporters. KYC and onboarding also remains a major MSME challenge, complicated by the fact that banks tend to book at MSME’s static documentation over live data.
  2. Transaction Complexity — Trade finance involves intricate workflows spanning multiple parties, often causing significant manual work and exchange of paper documents, leading to high operational cost and elevated credit risk. The divergence of regulation based on geographic area and different kinds of risk across different trade finance products creates unduly complex and opaque processes.
  3. Access to B2B markets — Suppliers are looking for new buyers and new revenue sources, yet they struggle to gain access to clients because they lack the knowledge or capacity to face other challenges in target B2B markets. Because of COVID-19, some businesses have faced payment delays and inflexible payment terms, causing gaps in working capital that can inhibit the servicing of existing clients, let alone new ones.

Much of current and potential global trade involves MSMEs but they face many hurdles to full participation in the global ecosystem.

Section 2: A vision for network interoperability for current and new market players

From ‘digital islands’….

Through the past decades of advancements in technology, companies have each focused on addressing the shortcomings of the legacy processes to create new trade finance approaches. This, however, has led to the development of “digital islands’’, closed systems of trading partners leveraging proprietary technology and focusing on specific use cases and pain points. These networks tend to evolve independently and do not create synchronous activity that enables interoperability.

…to global interoperability

The goal of the “interoperability layer” (the vision for a future global trade finance ecosystem) is to create a virtual construct designed to establish future standards, protocols, and guiding principles while enabling and facilitating adoption in the shortest time possible, without being dependent on the individual participant.

While this would provide no direct service to trade participants, it is setting of standards and common taxonomy would enable efficient and desired interoperability. The governance of this could be provided by a single global industry entity or by a consortium drawing from several.

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. 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.

We can look specifically to tech-based credit-scoring models.

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 tend to be more stable than typical balance sheets. Second, where available, they incorporate real-time transaction data in place of potentially dated metrics. Third, they use machine learning methods to capture nonlinear relationships across variables better than banks’ traditional linear models do.

The proposed layer would be designed around four principles.

  1. Serve as a virtual framework that shares best practices among participants. Not intended to be a hardware or software entity to which parties must connect.
  2. Foster collaboration among existing and new entities, avoiding the development and proliferation of digital islands.
  3. Help collaboratively define new standards or guidelines with relevant organizations supporting trade finance markets.
  4. Promote financial inclusion in which all parties have a fair chance to participate, with emphasis on MSMEs and emerging markets.

This can be broken down into three main logical blocks:

  1. Digital trade enablers — would be standards for global trade at large (Not just trade finance)
  2. Trade finance interoperability foundations or standards enabling digitization of the industry
  3. Guiding principles for trade interoperability — non mandatory recommendations for market participants focused on improving service levels while reducing cost to serve.

These three missions can be described into building blocks of an architecture and their role in an interoperability layer.

1. Promote adoption at scale of existing trade finance standards for operational interaction

One barrier to progress has been a lack of common standards. In areas such as quality management and environmental management, ISO standards have enabled businesses to reduce their costs, increase productivity, and access new markets.

Globally Recognized Company Identifiers

When companies are attempting to do business with one another, often there is a KYC structure in place. Numerous initiatives have aimed at certifying a company’s identity and by extension its suitability to engage in certain transactions.

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. Several existing initiatives aim to address these compliance and regulatory use cases.

  • Legal Entity Identifier (LEI) — Aimed at enhancing transparency in a global marketplace, the LEI makes two activities much 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. 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. They could save another 10 percent ($2 billion to $4 billion) in client onboarding costs.
  • European Digital Identify (EDI) — 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.
  • Decentralized Identifier (DID) — Designed by W3C, the DID is a verifiable, decentralized, digital identity that can be leveraged by organizations as well as data models. It stands “self-sovereign”, or independent of any issuing authority.

Standards for Digital Trade Documents

Cross-border transactions typically require a lot of documents that are key to trade finances. These documents may be paper or electronic copies of important documents. According to recent data from the DCSA, only 0.1 percent of bills of lading (important document) are issued electronically.

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 the transfer of physical forms, and remote working arrangements for back-office employees who normally inspect incoming paper manually.

Numerous efforts have been attempted to make electronic documents legally acceptable. Two entities: the UN Commission on International Trade Law (UNCITRAL) and the DCSA — are particularly focused on overcoming the barriers to trade document digitization. In 2017, it introduced the Model Law on Electronic Transferable Records (MLETR), giving legal recognition to the use of electronic transferable records as functionally equivalent to tangible documents. This also enables capturing dynamic information such as the position of the ship carrying goods, merging logistics, and finance aspects of the supply chain.

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. According to the DCSA, an adoption rate of just 50 percent eBL would save the industry €4 billion per year. 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. These standards are being aligned with the United Nations Center for Trade Facilitation and Electronic Business to ensure a global industry framework.

Trade Finance Product Taxonomy

The highly specific nature of trade finance has led to a lot of opaque, inconsistent, and even contradictory expressions. In 2016, the Global Supply Chain Finance Forum, released Standard definitions for techniques of supply chain finance, in an effort to create a consistent and common understanding applicable to both domestic and international supply chains. In 2021, to provide further clarity on the concepts discussed, the forum followed it with the Enhancement of the standard definitions for techniques of supply chain finance, based on in-depth discussion with industry experts. Adopting a glossary of “trade finance language” will benefit trade platforms and marketplaces as well as banks and clients’’ ability to weigh the advantages and disadvantages of various situations to engage in a more relevant dialogue.

2. Design and Disseminate Additional Global Trade Finance Standards and Protocols to fill Market Gaps.

To date, it is important to acknowledge that attempts at developing standards have only achieved limited adoption relative to the scale of the global trade finance market. 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 exclusively across institutions. In places where a standard taxonomy has been defined, a data model could govern how specific products should be represented and create technical formats which allow data to be easily processed across institutions, across partnerships, and to ultimately unlock greater efficiency in financial trade.

For decades, SWIFT has enabled the structured exchange of financial transaction data across 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.

According to a previous McKinsey report, 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 that spans across products channels and events is becoming more crucial for ensuring interoperability.

Productive Case Studies:

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. This allowed for firms in the derivatives market to enable automation of the tasks, generating valuable efficiencies. The trade ecosystem will similarly benefit from the harmonization of data with the end goal of increasing visibility and transparency.

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, through the use of an alternative credit score. Broader success of the CDI will depend on the active participation from stakeholders.

Standards for Trade Finance APIs

APIs have evolved into an efficient form of interaction for core participants of the trade ecosystem. API standards can be advanced by regulations (Payments Service Directive 2 (PSD2)) or from a bottom-up industry initiative such as the DCSA case in which parties agreed to use standardized APIs to exchange electronic bills of lading. These approaches can also 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.

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 APIs to connect to clients. 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.

More than 40% 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

Still, there are roadblocks before current and future standards are embedded into the day-to-day transaction. Wider adoption of standards, alone, will not be sufficient.

The third role for an interoperability layer would be to work as a global trade finance think tank in which trade participants incorporate recommendations and achieve economies of scale that were previously unthinkable. Though fully harmonized coordination is difficult, information sharing can achieve some of the same goals by adding clarity and fostering greater consensus across given segments of market participants.

Blue books and workflows for trade finance processes

Blue books can enable the dissemination of common rules across different functions and geographies. Even if it is not 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.

Guidance and best practices can be addressed in 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, such 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. This system 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

The trade finance community recognizes the importance of ESG performance, and so demand for ESG variations of trade products has increased.

An example of a sustainable shipment is letters of credit that enable 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. Sime sustainability-linked-supply-chain finance programs, suppliers are rated against a set of guidelines, where those who achieve a threshold receive financing at preferable rates. SWIFT also recently announced its KYC registry will include ICC’s Sustainable Trade finance Guidelines on customer due diligence and has already been adopted by more than half of its members.

A large problem, however, is that the definition of what qualifies as “green” is not consistent. There is no clear taxonomy for sustainable trade.

Guidelines for setting up and operating shared utilities

Shared utilities can be structured as (profit or non-profit) organizations specializing where a pooling of resources and knowledge provides more effective outcomes than achievable by individual market participants. Trade participants operating in several countries may find it convenient to leverage a utility specializing in digital identity, rather than independently tracking the pros and cons across various registrars.

The concept of shared utilities is not new, but the advancements in 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 non-differentiated 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.

PSD2 is an example of an event that spawned an industry response in many European countries, giving birth to a new market of industry utilities focused on providing gateway services, which became a precursor of today’s API-based open banking ecosystem.

Competition across multiple entrants on a decentralized basis in several areas where portability of identity and data can play a key role in trade finance. 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 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 identifies a company and its shareholders, allowing faster and more secure onboarding.
  • API gateways for value-added services, addressing an emerging market need. 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 would not only facilitate trade finance but improve the performance of participants in the global trade ecosystem.

Section 3: Building a consensus for global interoperability

The recent proliferation of networks, digital standards, and digitization efforts support the idea that people recognize the importance of enhancing trade finance efficiency. The current challenge is to build on this momentum.

Benefits of a revamped ecosystem flow to all categories of ecosystem players.

Buyers and Suppliers

The greatest potential benefit from a new ecosystem will flow to end-users (buyers and suppliers), in addition to the already addressed challenges for MSMEs, thereby increasing inclusion in the trade finance ecosystem.

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. This leads to fewer gaps in existing structural funding and more banks allocating funds to trade finance and form the participation of institutional investors.

Reduced transaction complexity and optimized costs

With the standardization of formats, digitization, and utilities such as KYC, all enterprises (in particular MSMEs) stand to gain efficiencies. Data sharing will lead to quicker and better KYC, and the elimination of paper submission requirements will reduce administrative burdens. In addition, the proliferation of emerging technologies could streamline processes, and expand affordable access to the trade ecosystem for MSMEs. Digital iterations of bills of lading or other shipping documents can also be digitally signed and encrypted, reducing security concerns over forged, manipulated, or stolen documents.

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

The employment of an interoperability layer would attract additional revenue streams and value-added services to make processes more efficient and cost effective through added transparency, access to technology, regulatory support, and additional credit capacity from institutional investors, who previously did not see trade finance as an asset type.

This approach will allow financial providers to spend less resources on implementation and to connect with more players under the same standard. 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

Expanded credit capacity

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. 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 underway between private entities and regulatory authorities. 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.

Other players in the trade ecosystem

Technology Providers

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.


Advances in standardization, digitization of processes, and electronification of forms are likely to streamline governments’ and regulators’ tasks. 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. Subsequently, we can also see this turn around and make it more efficient for market participants as well.

A road map to global interoperability

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.

Phase 1: Mobilize the existing trade finance ecosystem

This phase may last approximately 12 to 18 months and will include the following actions:

Establish governance model for an interoperability layer.

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. This governing body may take the form of a fully centralized organization or a distributed model of different degrees of consortiums.

Launch action plan to accelerate adoption of standards for digital trade enablement.

Accelerated adoption of existing standards by banks and technology providers is a critical step. The plan for this accelerated adoption could lead off with globally recognized company identifiers and standards for digital trade documents. Broader standardization for digital trade documents through the MLETR standard is essential to helping all parties realize the agility and cost efficiencies they desire. 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.

  1. Trade Finance Taxonomy
  2. Uniform Trade Finance Data Models
  3. Standards for trade finance APIs

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

We also recommend building a road map to align efforts across multiple institutions in trying to drive adoption of the key standards across the industry.

Phase 2: Develop the reconceived ecosystem and begin scaling up adoption

The second phase could extend over 2–3 years, and would focus on the completion of the missing elements of an interoperability layer.

Finalize missing elements of the interoperability layer.

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.

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; non-banking 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.

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.

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. 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.

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. Leveraging both supply and demand sides could create a network effort where adoption of standards, best practices, and blue books would rise exponentially.


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.

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

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.

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