Solving The Data Problem For Trade Finance Organizations

Data remains at the heart of some of the most critical processes of financing, trade finance included.

Having the ability to access and ingest vital information about a B2B trade deal, and the businesses involved in it, is paramount to underwriting trade finance and mitigating financial crime.

But there comes a point when more data fails to correlate to greater efficiency or less risk. Rather, it matters which data is accessed, and how a trade financier accesses it, that can determine everything from the efficiency of a transaction to its exposure to fraud risks.

Windward CEO and Co-Founder Ami Daniel spoke with PYMNTS about the value of granular-level data from cargo and shipping containers to mitigate risk. Plus, he explored the opportunity for financiers to take the initiative toward modernization and break with traditions that have long held the trade finance industry back from progress.

Digging Into The Data

The disruption of global trade related to the pandemic created new headaches for the trade finance industry beyond the pain points that have existed for years.

Changes in trade flows have “made it so much more difficult for financial institutions to do their job properly,” said Daniel.

Trade finance, and the underwriting and due diligence it requires, is no easy task. But many banks finance the same transactions repeatedly, creating a predictable and streamlined workflow of data aggregation from the usual providers.

Yet pandemic-related disruptions have meant supply chain disruptions in which businesses are working with different and unfamiliar partners. For financial institutions (FIs), that means bearing the costs of onboarding a new customer, which Daniel said can cost as much as $4,000.

At the same time, trade finance fraud and trade-based money laundering remain major headaches for financiers and regulators alike.

“AML [anti-money laundering] is basically a trillion-dollar problem at this point,” Daniel said.

These pain points have encouraged more financing entities to turn to third parties, particularly when it comes to data. With shifting rules from the Office of Foreign Assets Control (OFAC) and other governing bodies, coupled with the complexities of aggregating data from shipping containers or verifying bills of lading, having a financier go it alone creates new costs and friction points.

When one considers the volume of global trade that relies on trade finance, as well as the persistent threats of financial crime, the challenge of managing data alone can quickly become insurmountable.

Overcoming The Inertia Against Change

One of the most pressing challenges among financiers today, according to Daniel, isn’t only the due diligence required to combat fraud and crime, but the volume of false positives that demand time and resources to address.

Collaborating with a third party begins to make far more sense when automated data collection and management tools can not only create efficiency, but reduce the false positive burden. It’s partially the motivation behind Windward’s latest launch, Container Insights. The solution enhances its existing Cargo Insights offering and connects trade financiers and other entities to real-time data of containers and bills of lading to support due diligence.

But as Daniel acknowledged, not every FI is ready to make the transition to new workflows, even ones that could save them time and money.

Many trade finance banks have been relying upon the same data sources for decades, he noted. And yet, in addition to the false positives dilemma, a lack of transparency may create a scenario in which an FI has no choice but to consider another way.

“We’ve seen a lot of trade finance organizations struggle to even follow the trading path,” said Daniel, adding, “I’ve heard from professionals in this industry that don’t necessarily know which bill of lading they’re financing, or what’s the vessel that’s going to carry that.”

Financiers may find it too burdensome to review the 30-year-old data contracts they already have in place, but as the global health crisis revealed, trade finance organizations need new ways to keep trade finance flowing, even amid disruption.

Technology that deploys sophisticated tools like artificial intelligence (AI) can help. Yet as Daniel noted, change is ultimately up to the C-suite and decision makers of trade finance organizations.

“It starts with leadership,” he said. “Lean in, show the path, empower your people, get data and double-down on it. Don’t wait.”