April 16, 2018

The evolving role of AI in trade finance

Artificial intelligence (AI) is changing the way trade financiers do business, making trade assets investable at last.

The first applications of AI in the trade finance sector are fairly recent, and mostly focused on compliance and due diligence such as natural language processing to create comprehensive profiles of individuals or businesses involved in a transaction, based on extensive web searches. Other compliance applications scour trade finance documents to find anomalies - for example discrepancies between the price per unit of a product and the final invoice value.

As data collection grows and becomes automated in financial institutions, the efficiency and accuracy of AI solutions is increasing. In 2017, various companies started offering products that allow the complete automation of trade finance document processing. For example, HSBC and IBM developed a solution using IBM robotics technology to analyse documents, digitising and extracting data before feeding it into HSBC’s transaction processing systems. Considering that HSBC processes more than US$500bn in documentary trade - or 100 million pages of documents - each year, this could be transformational.

On the investment side AI has been making rapid progress as well, with some experts even warning that the technology may eventually replace human investment managers. In this field, AI solutions use algorithms to evaluate a client’s risk exposure and help to better understand individual investor preferences, allowing for the creation of customised portfolios. They also provide asset pricing and return predictions.

In 2012, the Man Group was one of the first to test an AI program to make investment decisions. In 2014, the company started using it to manage a small portion of its largest fund and by 2015, the AI-managed portion was contributing about half of that specific fund’s profits.

AI technology has evolved enough to combine compliance and portfolio management capabilities and bring the sectors of trade finance and institutional investment together. Tradeteq harnesses the power of AI to deliver advanced credit analytics and reporting, making trade finance asset investment both transparent and scalable. The platform’s rules-based workflow ensures eligibility criteria and portfolio guidelines are met, so investors can make sound credit, diversification and pooling decisions.

Having one common platform for trade finance originators and investors to interact means that data transparency can be increased, with Tradeteq collecting and aggregating information to create credit analytics and risk profiles. This makes trade finance data not only transparent, but actionable, and allows investors to avoid the negative selection of trade finance opportunities by originators.