State of the art review

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Business Software

  • Due to the technical nature of documentary credits, the “business software” market for solutions to manage them consists of very few players. Some editors of “vertical” software packages (specialised in a single activity sector) or dedicated to logistics sometimes feature a “documentary credits” module in their offer that only briefly addresses the issues related to this type of operation.



Banking portals

  • In the 2000s, banks invested in new back office systems to reduce their operating costs. They offered notification portals to their clients, thereby putting an end to the practice of sending faxes to send issuance requests and irregularity clearance requests.
    But the importer’s role is often reduced to that of a basic data entry assistant. Even though some portals are more sophisticated than others, particularly in terms of reporting, treasurers have a hard time obtaining consolidated and real-time data, since they work with several different banks at the same time. Employees in charge of the letters of credit thus have to deal with different portals, and therefore a variety of tokens, a multitude of passwords, etc.



Swift MT798 Messages

  • Banks communicate with each other via the SWIFT network. Exchanges follow a specific protocol. SWIFT messages relating to letters of credit are all MT7xx messages. The MT700 message, for example, contains the terms and conditions of a letter of credit.
    The SWIFT protocol has recently been extended to allow communication between a bank and a company within the framework of a letter of credit and guarantees (Trade Finance). Documentary credit processing is now facilitated via specific requests that use the FileAct messaging protocol or through FIN messages that are structured using the MT798 format.
    This allows the importer or exporter to communicate with his banks via a single channel. To do this, the company will have to adapt its IT system to this new protocol, or use software that processes all Swift MT798 messages.



Expert software for “documentary credits”

  • Due to the relative complexity of documentary credits, and therefore the technical barrier that this can represent for a treasury or TMS software publisher, the market for software dedicated to Trade Finance remains a niche market. In France, FINELIA is the publisher that offers a tool dedicated to documentary credits. This Multi-bank processing and tracking solution dedicated to Trade (letters of credit, guarantees, remdocs) allows companies to exchange MT798 messages with their banks via Swiftnet, whether they are an importer or an exporter.
    For imports, this tool automatically generates the request to issue a documentary credit using the details from an order form as soon as it is validated, by interfacing with the client’s information system. On the exporter side, the software can automatically generate documents or the instructions to be sent to the freight forwarder, based on a letter of credit received by email, or by swift.



Electronic platforms, Blockchain

  • Many electronic systems and platforms projects (pilot, POC,…) are part of the ongoing shift to digital documents. These projects promise fully electronic transactions, where no paper documents are used. These systems require the commitment of all those involved in international trade (Clients, Suppliers, Banks, Banks, Carriers, Chambers of Commerce, Embassies, Customs, etc.) in order to communicate and exchange through these networks, secure messaging systems or distributed registers (A blockchain is a transparent, secure information storage and transmission technology that operates without a centralised control body (Blockchain France’s definition)).
    Without a doubt, the blockchain is a disruptive technology that will need to be “tamed” over the coming years. In terms of documentary credits, this technology should facilitate the exchange of documents between stakeholders.



Conclusion

  • Even though some banks still notify export letter of credit beneficiaries by fax, the train is in motion!!! The MT798 and electronic documents should help to stabilise – and even increase – the market share of documentary credits. We will wait to see the results of pilot tests and other POCs before we express an opinion on the impact of blockchains on Trade.
    The evolution towards all-digital exchanges seems irreversible in the medium to long term. However, the digitalisation efforts required of involved stakeholders and the habits and disparities between all global trade participants will be challenging obstacles to overcome.



Our opinion

  • Bringing together all of the players involved in international trade around a common platform or technology such as the blockchain remains a huge challenge.
    Why not… but it will first be necessary to “digitise” the documents that are exchanged, and computerise the management of letters of credit within companies.
    Using the Swiftnet channel via the use of MT798 messages to communicate with one’s banks, and the sending and receiving of scanned documents, seems to us to be the most appropriate and easiest solution to implement.
    The bank benefits from the automisation of its back office system and companies benefit from a multi-bank solution that facilitates the processing and monitoring of their documentary credits and international guarantees.