API (Application Program Interface) in Trade Finance Explained

APIs are the miracle connectors that make a lot of things work in the world that we live in today. For example, when your taxi booking app wants to know what the traffic conditions are, the app can call a google API which returns the traffic data. Google charges a small fee for providing the information. For Google, this monetises the data which it collects from its millions of users on traffic conditions, and for the taxi company, the information required to provide a good service to its customers becomes available. Everyone wins.

At the heart of the API is an information asymmetry.

One system run by one company has data in it which another system run by a different company wants. The API allows the information to be shared securely and safely.

There is information asymmetry everywhere in global trade. Partly this is because a lot of global trade still runs on paper, but also because there are some many moving parts. A simple example illustrates the point. Suppose a buyer in some foreign land wants to know where his goods are.

With API, we can do the following:

• Collect a scan of the bill of lading for a container and the packing list.

• Pull the name of the ship from the bill of lading using an OCR service (send an image of the BL through the API of a scanning service provided by a specialist company, receiving back the name of the ship).

• Send the name of the ship to a maritime positioning database which knows where all the ships are in the world (call the API of the maritime positioning database with the name of the ship, receive back where the ship is).

• Plot the ship on a map of the world showing where it is.

• Extract the information from the packing list using an OCR service (send an image of the packing list through the API of a scanning service provided by a specialist company, receiving back the name of the ship).

• Link the data from the packing list to the ship location, and, for example, based upon the speed of the ship, forecast when the goods will arrive.

There are systems which are already starting to collect information in this way from different specialists and different systems to create brand new views of the supply chain and where goods are as they travel from exporter to importer.

These same techniques are very useful in trade finance.

Just like the document scanning and data extraction services used in the above example, trade finance can be provided as a service via APIs. For example, a logistics company like a freight forwarder will know that a shipment is taking place. The forwarder will know all the information that a financier needs – and likely will have this information already in his systems. So this data can be transmitted to the trade financier’s APIs as it is collected – copies of the bill of lading, packing lists, commercial invoices, consignor and consignee details and expected timing for the shipment.

As this information arrives, the trade financier can prepare the documentation for the financing, coordinate with the importer to make sure that the trade is agreed, and then can pay the exporter. APIs are used to receive the information and then to respond with legal agreements and confirmations as the trade finance is validated through the back office of the financier.

Most importantly...

This finance activity can be coordinated without the exporter leaving the portal of the freight forwarder. And this same information can be used to discharge all the compliance obligations and sanction checks that need to be done by the financier – which includes, for example, checking the vessel routings and behaviours against regulatory databases – and the financier can then also make this information available back to the forwarder and then on to the buyer. So APIs can be used through the service to consolidate information from different sources and to make this information available up and down the supply chain so that everyone gets the same, real-time views of activity and data.

All this leads to brand new ways of working across the finance and supply chain industry. Systems, perhaps led by the logistics industry, are used to present real-time data to importers and exporters about goods, transit operations and financial services that are needed to understand, control and manage the passage of goods from one country to another. At the heart of these new customers, journeys are specialist systems performing individual tasks, which are communicating with each other using APIs – allowing the main service provider to collate the information and present it for consumption by the customers – the importers and exporters.

Another information revolution is coming – where the current “spider’s web” of data and systems gets integrated into a single, digital customer journey. Logistics is one significant part of this story – and the other significant part is finance. Combining logistics and trade finance via APIs, in conjunction with these many other services that are available over APIs, will power new ways of working that we are only now starting to appreciate and see.

Amazing things are coming, and they are coming very soon.

About the Author

Tim Nicolle is the CEO of PrimaDollar, a global FinTech specialising in the delivery of trade finance over APIs.