Accelerating Trade Finance Growth: Digitalization and AI as Strategic Differentiators
The future of trade finance is digital and AI-driven
Despite the potential benefits of digitizing and digitalizing trade finance operations, and continuous efforts by industry bodies, the industry still relies on a combination of physical, electronic, and digital methods for exchanging trade documents and conducting trade finance operations. Regions, countries, regulatory authorities, and other stakeholders in the trade lifecycle exhibit varying levels of maturity in adopting valid electronic or digital trade transactions. For instance, in some countries, submitting a trade request digitally through a corporate digital banking platform by scanning the necessary trade documents is seen as a significant advancement, whereas in others, even achieving true digital transfers using the ITFA’s digital document (dDOC) specifications via a proof of concept is considered insufficient.
These differing digitalization benchmarks can partly be attributed to varying levels of maturity in adopting technologies such as natural language processing, machine learning, AI, generative AI, and now agentic AI, compared with earlier foundational tools such as intelligent character recognition, an advanced form of optical character recognition technology. AI adoption offers straightforward ways to automate routine trade finance tasks so human intervention is required only for the most critical steps. Although industry software solutions support these underlying technologies to varying degrees, the selective use of AI capabilities by certain financial institutions and corporates has led to fragmented “islands” of electronic or digital trade operations.
Isolated adoption of these technologies will not achieve the critical mass needed to drive significant cost savings. This realization has spurred the International Chamber of Commerce to launch the Digital Standards Initiative (DSI), which is regarded as a pivotal driver of dynamic, sustainable, inclusive growth. The DSI aims to accelerate the creation of a globally harmonized digital trade environment through initiatives such as the Roadmap to Digital Trade and the Key Trade Documents and Data Elements report, which covers 36 widely used trade documents. To join this digital trade ecosystem and take advantage of the opportunities digitalization can create, financial institutions will need to embrace two key concepts: interoperability and tokenization.
Interoperability: The linchpin of digital and AI transformation
One of the key requirements for achieving interoperability is the industry’s support for open banking standards and APIs, which facilitate seamless and efficient industry exchanges. The SWIFT developer APIs, covering demand guarantee flows and trade finance validation services, have provided much-needed direction on the importance of developing and supporting fine-grained open APIs in trade finance technology solutions. Additionally, SWIFT’s demand guarantee APIs and analytics premium APIs offer an early glimpse into the shift toward adopting ISO 20022 formats in trade finance and showcase their potential to deliver rich data and analytics, similar to trends observed in the payments industry.
Tokenization: Building on the success of other industries and sectors
Tokenization—the creation of a secure digital representation of a physical document—represents another transformative opportunity for the trade finance industry, drawing inspiration from advancements in other banking sectors, such as payments, syndications, and treasury, as well as from other industries, including gaming and art. It has the potential to fundamentally rewire and streamline trade finance operations by allowing financial institutions to use smart contracts to automate—with initial human oversight—the lifecycle events and actions associated with typical trade finance instruments.
The ITFA’s dDOC specifications, combined with UNCITRAL’s Model Law on Electronic Transferable Records (MLETR), have already established a robust foundation for the tokenized transfer of titles to instruments among trade finance industry participants. New entrants can capitalize on digital technology to anchor contracts using digitized documents such as bills of exchange, bills of lading, and warehouse receipts to collateralize their lending activities in lieu of paper-based documents. Tokenization helps ensure that the transfer of these documents is tamper-proof, and digital platforms can support seamless financing, providing lenders with greater access to opportunities in invoice and working capital financing. Moreover, tokenization platforms have the potential to help financial institutions scale trade and supply chain transactions securely, and they offer interoperability with diverse systems.
Interoperability as a driver of financial inclusion
Adopting a digital-first strategy, supported by interoperable standards, enables financial institutions to leverage existing data within the supply chain, enhance operational efficiency, and ultimately expand trade finance access to underserved markets and segments. For instance, the challenges faced by small businesses are widely recognized today, with a well-documented and growing credit gap in this segment. While banks have historically focused on high-value transactions, they increasingly acknowledge the critical importance of the small and midsize enterprise (SME) sector. Though SMEs may lack the headline-grabbing appeal of larger enterprises, they remain the quiet yet powerful engines driving the growth of national economies.
By achieving significant gains in operational efficiency through digitalized trade processes and interoperability, financial institutions can reduce costs and increase transaction speeds and volumes, allowing them to expand their focus beyond high-value transactions and include previously unexplored segments of the trade ecosystem.
Unlocking opportunities and efficiency with digitalization
The digital space has opened new opportunities for nontraditional lenders beyond conventional banking and factoring companies, allowing them to participate in financing while minimizing their risk exposure. Fintech platforms active in this domain provide small businesses—often hindered by challenges such as tariffs, onboarding, and banks’ derisking strategies—with easier access to working capital. To compete with these emerging, tech-savvy lenders, financial institutions need to focus on agility and innovation, leverage nontraditional data to assess small business financial risk, actively partner with each other to streamline onboarding, and recalibrate risk pricing. And they’ll need to embrace an agile, digital-first approach that takes full advantage of the capabilities of AI, APIs, and the cloud to capitalize on the benefits of digitalization and interoperable trade flows.
The progressive adoption and transformation of trade processes through cutting-edge technologies, guided by industry standards and frameworks, can enable financial institutions to achieve significant gains in operational efficiency and unlock new opportunities within unexplored segments of the trade ecosystem.
Oracle’s role in shaping the future of trade finance
This is a pivotal moment for the trade finance industry. To stay competitive, financial institutions must embrace a forward-thinking, technology-driven approach by aligning with industry standards and adopting digital-first strategies.
With extensive global expertise and experience collaborating with a broad client base across the financial spectrum, Oracle Financial Services can provide robust support for essential trade finance operations. This includes full coverage of trade finance instruments, adherence to SWIFT and accounting standards, and the integration of advanced technologies such as artificial intelligence and machine learning to enhance functionality. Our cloud capabilities across multiple regions, powered by the high performance Oracle Cloud Infrastructure, help banks achieve exceptional system reliability, scalability, and security, thereby improving efficiency and user experiences.
Furthermore, we strengthen our offerings through strategic collaborations with leading fintechs that advance our digital capabilities and build connections within the trade ecosystem, and we prioritize seamless interoperability through a comprehensive API framework and open banking APIs. This enables connectivity with a wide array of stakeholders—including banks, corporates, fintechs, and digital platforms—addressing critical aspects of risk management and compliance in trade finance.
In a rapidly changing environment, collaborating with experienced technology leaders can empower banks to address digitalization challenges and gain a strategic edge in trade finance. The urgency to transform is evident—modernizing trade finance is no longer optional but essential for sustained growth.