There is an observation we have made repeatedly over many years when discussing the future of trade finance. People can see perfectly well that circumstances have changed, yet we remain remarkably attached to familiar structures long after the conditions that created them have begun to disappear.
That attachment is understandable because familiarity has genuine value in trade finance. A documentary credit subject to UCP 600 operates within a framework understood across markets, with bank procedures and systems developed around it and generations of practitioners trained to work within it. Nobody should advocate abandoning something merely because it is old, particularly when it continues to perform its intended function effectively. The difficulty comes when familiarity itself begins to provide the justification for retaining a process, rather than a considered assessment of whether that process is still the best way of achieving what the transaction requires.
The bill of lading illustrates how easily this can happen. For generations, possession of an original paper bill performed an important legal function, so moving the document physically around the world was not simply an inefficient habit that technology could remove. The paper was integral to the legal structure of the transaction. Technology subsequently developed far more quickly than the law, which gave the industry entirely legitimate reasons to proceed cautiously.
We are no longer in quite the same position. UNCITRAL adopted the Model Law on Electronic Transferable Records in 2017 to enable transferable documents and instruments to exist electronically, using concepts such as control and integrity to provide the functional equivalent of possession. MLETR-based or influenced legislation has since appeared in a growing number of jurisdictions, including the United Kingdom. The legal environment is therefore beginning to remove some of the reasons why paper had to remain, leaving us with the rather more uncomfortable question of why it continues to do so.
The 2024 FIT Alliance survey gives that question some substance. Overall eBL adoption among respondents increased from 33% in 2022 to 49.2% in 2024, while almost three quarters of those still using paper said they intended to make the transition. Banking respondents reported awareness of 82.5%, yet adoption among them was only 21.1%. The issue can hardly be explained simply by a lack of awareness when organisations already understand the direction in which the market is moving.
Something similar can happen when we talk about documentary credits and digitalisation. ICC has provided rules supporting electronic presentation for many years through the eUCP, so the idea of presenting an electronic record rather than a piece of paper is hardly revolutionary. But replacing a paper document with an electronic representation of the same document, while leaving everything around it substantially unchanged, can amount to little more than reconstructing the existing process on a screen.
As trade becomes increasingly data-driven, that approach deserves greater scrutiny. Where a condition can be established reliably through authenticated data, we should at least be prepared to ask whether creating a document containing that information remains necessary. There may be perfectly good reasons for doing so, just as there remain perfectly good reasons for retaining many established trade finance practices. The difference is that the decision should follow from examining what the requirement is intended to achieve rather than assuming that the historical means of achieving it must continue indefinitely.
This is why the discussion cannot really be separated from institutional behaviour. Continuing with an existing process normally requires no particular act of corporate courage. It is already embedded within procedures and systems. Changing it is different because somebody has to propose the alternative, secure approval and ultimately accept responsibility for the consequences. We consequently create an imbalance in which change must continually prove itself while the status quo is rarely required to do the same.
None of this suggests that traditional trade finance has somehow become obsolete. The commercial needs that created it remain. Sellers continue to seek greater certainty of payment, while buyers may want payment to depend upon compliance with agreed conditions. Banks can continue to intermediate between those interests and provide financing where it is required. What is changing is the environment in which those functions are performed, and that gives us an opportunity to distinguish more carefully between the purpose we need to preserve and the machinery through which we have historically delivered it.
The same thinking should extend to the rules. Internationally accepted rules have provided trade finance with an extraordinary degree of consistency across different markets and legal systems, but respecting that achievement should not prevent us from asking whether individual provisions continue to operate appropriately as the environment changes. ICC has already recognised this through its work on electronic compatibility and the development of the eRules. As data becomes more prominent within transactions, that process of examination will inevitably have to continue.
For too long, discussions about the future of trade finance have sometimes begun with the structures we already have and then considered how new technology might be fitted around them. We need to reverse the question. Rather than starting with the documentary credit, the bill of lading, the document or the process and asking how we digitise it, we should start with what international trade needs us to achieve and consider the most effective way of achieving it in the environment that now exists.
Some familiar structures will emerge from that examination largely unchanged because they continue to do their job extremely well. Others will evolve as technology and law give us better ways of performing the same function, whilst some may eventually become difficult to justify at all.
That should not trouble an industry whose purpose has always been to facilitate trade. What should concern us rather more is preserving a structure after its original justification has disappeared simply because continuing with it is easier than accepting responsibility for changing it.
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