eIDAS, PSD2 and The Digitization of International Trade

Imagine a scenario where a small company is importing a million dollars’ worth of goods for local distribution. A signature mismatch in one of the shipping or trade financing documents is raised as an exception and the whole transactions gets delayed.

The goods sit at the port incurring demurrage and other charges, the supply chain is disrupted, the distributors don’t have the goods that they have pre-sold, the financing charges continue to ramp up and a profitable trade has now turned into a nightmare!

Such scenarios are indeed not all that common anymore. But given the sheer volume of international trade this can and does happen – especially to smaller companies which don’t have large dedicated departments solely handling just one function. And when situations like this do happen, it can cause reputational and financial damage to all parties involved.

Standardizing the tools of international trade has been a trend that has been going on for over a century. Yet, as new economic powerhouses emerge with different cultural, legal and business environments the cycle seems to begin anew. Today, global trade is bigger than ever before and trade in services has become a new focus area in addition to the traditional trade in goods. In order to ensure the smooth flow of these goods and services, and the reciprocal flow of capital, trade is now being digitized.

A Banking Perspective

The eIDAS Regulation has added more functionality and trust to digitization tools like qualified electronic signatures and seals, electronic timestamps and electronic registered delivery services. A key pillar of eIDAS has been to ensure cross border compatibility for all these tools across Member States to promote the EU Single Market.

Banks and traders alike are likely to have a much easier time with a highly harmonized single market and financing deals across the EU. For banks specifically, it means that they can compete for business outside of their parent jurisdiction and they would be competing based on cost, service and quality rather than just geographical footprint or size.

Trade is one area where many banks like to specialize based on product categories or geographies. With the ability to initiate and service cross-border deals more easily, banks are likely to be able to bring their specialization to a wider audience and improve the overall performance in the industry.

For example, let’s take a bank which specializes in financing the trade of agricultural produce. They have the ability to structure complex deals involving multiple countries, multiple counter-parties and possibly multiple currencies and governing jurisdictions. EU regulations like eIDAS will allow this bank to offer its services to a much bigger customer base across Member States and the ability to really create value-added products because of innovative enablers like PSD2. Another example would be the creation of a mobile app by this bank that allows farmers to check rates in real time and enter into cross border trade agreements, along with the necessary financing arrangement, with the push of a button.

The next step would be to take this idea of cross-border trade global. And it seems that some countries are already moving to do just that to ensure they don’t get left behind in this new trust-led race for securing a competitive advantage.