Seven global banking giants have teamed up to form a network aimed at speeding up the digitization of traditionally paper-based trade finance.

The banks — ANZ, Banco Santander, BNP Paribas, Citi, Deutsche Bank, HSBC. and Standard Chartered — announced their “Trade Information Network” on Wednesday, saying it would “address the unmet demand for financing earlier in the supply chain by enabling corporates to easily and securely communicate trade information directly with banks of their choice.”

Global trade finance, which allows importers to buy exported goods before delivery, using documents such as letters of credit, amounts to more than $9 trillion a year.

But as Australian Financial Review reports, the industry is heavily paper-based and “has been in a challenging period with revenues sinking, despite high commodity prices, as compliance and fraud risks rise.”

Bankers involved in the new network said it could finance a “significant” part of the $1.5 trillion demand per year for trade finance from small and medium-sized companies that is currently not met by the trade finance industry due to higher costs and risks.

The global trade finance gap is estimated to grow to $2.4 trillion by 2025, reflecting the massive volume of paper required for communication between customs brokers, freight forwarders, transportation carriers, government agencies, and banks.

According to the World Economic Forum, the cost-to-income ratio for banks in traditional trade finance is between 50% and 60%, meaning more than half of the price charged to clients goes toward operational expenses, even before the costs of risk, liquidity and capital.

“By linking corporates, suppliers and banks through a standardized digital platform, the network aims to lower costs as small and mid-sized companies will be able to submit and verify purchase orders and invoices to request trade financing from the banks of their choice,” Reuters said.

The seven founding network members have signed a Memorandum of Understanding and have selected CGI as the technology provider. “The network has the potential to transform international trade,” they said in a news release.

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