Opinion – Trade Finance back offices back in France thanks to AI?

Indeed, the development of Artificial Intelligence (AI) technologies makes this organizational model less profitable and some market players are already planning to relocate their Trade Finance back-office operations to France.

Banks have, since the 2000s, relocated their Trade Finance back-office operations to CSPs.

Most international banking establishments use CSPs to process their back-office operations, particularly Trade Finance. Created in the United States in the 1980s and adopted by French companies at the beginning of the 21st century, these autonomous entities pool the processing of documentary credits and international guarantees of the banking establishment on a regional or global scale.

This centralization of Trade Finance back-office activities in a single place has many advantages, including in particular the reduction of process costs thanks to the economies of scale induced by the processing of a greater number of operations.

This reduction in costs is very often reinforced by the relocation of the CSP to a country where labor is less expensive than in France. Poland and Romania are frequent destinations in Europe, or India where the cost of labor is 4 to 5 times lower than in France. Some banks use CSPs located in India for the back-office processing of their Trade Finance transactions. They only retained locally the activities requiring greater expertise, such as the validation of transactions or permanent control by sampling. Similarly, the direct relationship with the customer, requiring a detailed understanding of the local market, remained in the hands of the business teams in France.

Made possible thanks to digital tools, this use of CSPs has also accelerated the digitization of Trade Finance activities.

The splitting of processes into several places was made possible thanks to digital tools. They allow the sharing of information between the various stakeholders on the process, even located thousands of kilometers from each other. For example, the CSPs located in India are working on digital versions of the documentary bundles, which were received in paper format in France and then scanned. This distribution of activities has of course created a very strong need for coordination between the delocalized back-office and the internal teams. It was necessary to set up digital tools for managing and monitoring flows that allow end-to-end processing of a process in a decentralized manner. This new organizational model, directly resulting from the digital revolution, has therefore also largely contributed to the growing digitization of Trade Finance activities.

They are now entering a new phase of technological development: artificial intelligence. In several local banks, projects are underway to completely automate the analysis of documentary bundles. Once scanned, the bundles are “read” by character recognition software (OCR). The extracted data will then automatically fill in the corresponding fields in the transaction processing tool via an API or the use of a robot (RPA: Robot Process Automation). Only two activities of this process remain, for the moment, carried out only by humans: the scanning of the documentary bundles, which have not yet been dematerialized, and the validation of the operations after verification that the data dumped automatically is correct. However, if the results of the AI ​​prove satisfactory, it is likely that manual verification will no longer be necessary and only a sampling check will be carried out afterwards.

The technological leap towards AI allows the relocation of the Trade Finance value chain.

If the entry cost of such projects can be significant, the use of AI technologies leads to a significant performance gain and a substantial reduction in costs. Based on algorithms, these new tools are capable of handling huge amounts of transactions with an infinitesimal number of errors. As a result, their use very often makes it possible to reduce costs more than using a CSP, as shown by a study by the Everest group published in 2016. As a result, banks are beginning to consider repatriating all activities of the Trade Finance value chain within their local business teams, the use of more efficient digital tools should allow a sufficient gain in productivity so that the outsourcing of back-office operations is no longer profitable. A project of this type was launched at HSBC in 2017.

Thus, while it is likely that AI will ultimately allow the relocation of Trade Finance back-office activities, the same is not true of jobs. Indeed, the tasks currently carried out by CSPs will have been partially or completely automated. The human will often only have a role, however crucial, of supervising the machine. The question will then arise of the requalification of back-office managers, both in France and in the CSPs. Moreover, a study carried out by IBM in 2019 estimated that in France more than 2 million employees, and 120 million worldwide, will need to be requalified in the near future due to the use of robots and of AI.

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Opinion – Trade Finance back offices back in France thanks to AI?

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