In this era of digitization and fast computers, there is one aspect of the business that is still being chugging along at a century old pace. This is the DOCUMENTATION department.
It has been deemed critical for every business and for each department within the business too to track, convey and communicate with colleagues, managers etc. in a traceable and trackable manner. Documents with personal authorized signature in physical form are still considered and perceived to be more secure than an online form through a secure system. The human psychology still associates physical touch with original document vs a digital copy of the same document through a secured digital gateway. It is also common to connect or relate more number of signatures on a document with more security and correct representation of an agreement on paper vs an email copy of the same.
To quote another example where the use of physical documents and physical signature are considered highly secure is in the trade finance industry. Till date, the most developed markets and the most sophisticated financing institutes still rely on physical form filling for order processing, application for credit facility, acceptance of the credit facility and sharing of various documents for loan disbursement within their own institute, across cross-border institutes as well as with regulators.
It will not be beyond our understanding to realize that all the physical documentation that lending institutes require from us has a cost — people to verify the documents, physical office space and of course, the printing, making improvements to the documents, scrapping the older version, transporting them using mass trucks or courier services and then again re-printing these — all these are charged back to the customer in various forms.
For example, our company’s internal calculations show that in addition to the borrowing costs that company’s pay to the lender, close to 0.1% is further added as part of cost to every trade and this is attributable entirely to documentation. In emerging markets, this percentage can be sometimes even higher owing to the long physical distances between borrower and the lending institutes.
Under documentary credit trade, physical documentation also takes time to travel and until the acceptance of documents from the issuing bank reaches the discounting bank, the beneficiary of the credit needs to pay borrow cost under TRUST RECEIPT process, again extra costs that are charged over and in addition to the interest cost.
On the contrary, relaying instructions to lending institutes by fax is considered entirely secure vs an entirely online solution. Remittance instructions for transferring of money can be executed over a fax.
In this era of Blockchain and cloud where more secured services are being offered digitally, is not time that we questioned the banks for their lack of adoption of such technologies leave alone develop themselves so that these additional costs can be reduced?