Beyond scanning documents: What real trade finance digitalisation requires

Trade finance plays a vital role in supporting international trade by enabling exporters and importers to manage payments, risk, and documentation. In Bangladesh, trade finance remains heavily dependent on bank-intermediated instruments such as letters of credit and documentary collections. 

Despite advances in other areas of banking, trade finance still relies largely on paper documents, manual verification, and the physical movement of files. This traditional structure is becoming increasingly costly, slow, and risky as global trade standards evolve. Trade digitalisation is therefore no longer optional; it is now a necessary step to maintain competitiveness, credibility, and efficiency.

Many banks believe they are already digital because documents are scanned or exchanged by email. However, this is merely digitisation, not true digitalisation. Digitisation converts paper into electronic images. 

Digitalisation goes much further by redesigning the entire workflow so that data flows automatically, decisions are system-supported, errors are minimised, and compliance checks are embedded in the process. In trade finance, this distinction is critical. Without digitalisation, banks continue to rely on human intervention at almost every step, limiting speed and increasing operational risk.

A recent survey by BIBM (2025) on commercial banks clearly shows that Bangladesh's trade finance sector is in a transitional phase. Almost all banks describe their operations as partially digital, while a small number remain fully manual. Importantly, no bank reports full digitalisation. 

This indicates that digital tools exist but are layered over traditional processes rather than replacing them. In practice, customers may submit applications online, but document checking, discrepancy handling, and approvals often revert to manual processes. The result is limited improvement rather than genuine transformation.

The pace of change also reflects institutional caution. Most banks report only moderate reductions in manual paperwork over recent years, while very few have achieved major reductions. This suggests that banks are improving incrementally but are not yet prepared to redesign trade finance as a fully digital workflow. Incremental progress reduces discomfort, but it does not unlock the full benefits of digitalisation.

One reason for this slow progress is weak strategic alignment. Only a minority of banks strongly align trade finance digitalisation with their overall digital transformation strategy. In many institutions, trade finance is treated as a specialised or secondary area rather than a core digital priority. 

As a result, budgets are constrained, system upgrades are delayed, and trade digitalisation projects remain fragmented. Without strong institutional alignment, trade finance struggles to keep pace with digital advances in retail banking, payments, or treasury operations.

Banks in Bangladesh have focused their digital efforts on areas that are mandatory or highly standardised. Systems such as SWIFT messaging and regulatory reporting are widely adopted and relatively mature. 

While these tools are essential, they represent only a small portion of the trade finance workflow. Deeper digitalisation—such as fully digital document processing, domestic trade documentation, and straight-through processing—remains limited. Many banks still cannot process a trade transaction end-to-end without manual intervention.

Trade digitalisation is not about removing paper for its own sake. It is about creating a faster, safer, and more transparent trade finance system that meets global standards. As Bangladesh prepares for a more competitive post-LDC environment, adopting a broad and well-coordinated approach to trade digitalisation is essential.

The BIBM survey results also highlight where the real challenges lie. Banks do not primarily blame customers for slow adoption. Instead, they point to internal and ecosystem constraints. High technology costs are the most frequently cited barrier. 

Cybersecurity concerns, system integration gaps, limited staff expertise, and legal uncertainty surrounding electronic documents also feature prominently. Customer readiness is generally viewed as a moderate issue rather than a major obstacle.

Survey responses show strong agreement that digital tools reduce processing time and improve compliance. Many banks also report improvements in customer experience. 

However, banks are less convinced that digitalisation significantly reduces costs or attracts new SME clients. This suggests that digitalisation is still perceived mainly as an operational efficiency tool rather than a strategic business opportunity.

Legal and regulatory uncertainty plays a central role in shaping bank behaviour. The absence of full legal recognition for electronically transferable records—such as electronic bills of lading and electronic promissory notes—creates hesitation. 

Banks are understandably reluctant to rely entirely on electronic documents when enforceability remains unclear, particularly for cross-border transactions. Occasional regulatory guidance, rather than continuous and detailed direction, adds to this uncertainty.

Trade finance differs from most banking services because it involves multiple independent actors. A single transaction may involve exporters, importers, issuing banks, advising banks, shipping lines, insurers, customs authorities, port operators, and regulators. Digitalisation can only succeed if most of these actors are ready to operate digitally. 

If even one party insists on paper-based processes, the entire transaction can revert to manual handling. This makes trade digitalisation far more complex than digitalising a retail loan or payment service.

For this reason, adopting the right approach is crucial. A narrow, bank-only digital strategy cannot deliver full results. Successful trade digitalisation requires a broad, coordinated approach that brings together legal reform, technology investment, standardisation, and stakeholder collaboration. These elements must progress together; if one lags behind, the entire system slows.

This mindset needs to change. Digital trade finance can significantly reduce costs over time by eliminating paper handling, reducing errors, and lowering rework. It can also support SME inclusion by simplifying documentation, improving transparency, and enabling faster access to finance. When digitalisation is designed solely to improve internal efficiency, these broader benefits remain unrealised.

Moving forward, banks need to focus on integration rather than automation alone. Automating individual steps without connecting systems merely shifts work from one point to another. 

Integration enables data to move seamlessly between trade platforms, core banking systems, compliance engines, document management systems, and national trade portals. Without integration, straight-through processing remains unattainable.

Cybersecurity must also be treated as a core design requirement. As trade processes become digital, data volumes increase and more parties gain access. Strong authentication, encryption, monitoring, and incident response capabilities are essential to maintain trust. Banks must also communicate clearly with customers about these safeguards to reduce fear and resistance.

Human capacity is another critical factor. Trade finance staff need training not only to operate new systems but also to understand digital workflows and risk controls. Banks that have introduced automation report fewer errors and faster processing, but scaling these gains requires structured change management and continuous learning.

Trade digitalisation is not about removing paper for its own sake. It is about creating a faster, safer, and more transparent trade finance system that meets global standards. As Bangladesh prepares for a more competitive post-LDC environment, adopting a broad and well-coordinated approach to trade digitalisation is essential. 

The question is not whether this transition will occur, but whether it will happen through deliberate planning and coordination or under the pressure of disruption and crisis. At this stage, strong national-level leadership can align stakeholders and scale successful initiatives.

Shah Md Ahsan Habib is a professor at the Bangladesh Institute of Bank Management (BIBM).

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.