Digital Economy Agreements not only remove digital trade barriers, but can be used to form virtual economies built on cross-border trust and cooperation.
In January 2020, three countries signed the first Digital Economy Agreement (DEA) to strengthen connectivity, remove barriers in the digital economy, and support the commercialization of new technologies.
The deal between Chile, Singapore and New Zealand was followed by similar alliances with Korea in June 2020 and Australia in December 2020, and in the UK in June 2021.
Digital Economy Agreements have been a necessary response to the unprecedented economic challenges of the global coronavirus pandemic. They are also the acceleration of a previous trend toward the digital transformation of banking and trade amidst the rise of neobanks intent on disrupting financial services for a new generation of consumers.
The stakes could not be higher, nor the upside greater. Singapore, a global commerce hub dependent on international trade, experienced her worst-ever recession in 2020, contracting nearly 6%. Now, the country is determined to do everything it can to stay open as an international hub.
Advocating for a more connected, interoperable future, DEA proponents have placed a major bet that the global economy will be increasingly digital in the post-COVID era.
Boosting cross-border connectivity
As organizations begin planning for 2022, they will need a technical roadmap built around the priorities of facilitating e-invoicing, e-payments, cross-border trade digitalization, automation and other banking processes that would benefit from clear digital transformation strategies.
According to a recent study of cloud transformation in financial services by Google and the Harris Poll, when it comes to cross-border invoicing and e-payments, respondents concurred on the need for secure, reliable cross-border connectivity without the need to manage and deploy physical infrastructure.
The consensus was that one-size-fits-all cloud solutions can be a double-edged sword. On the one hand, they offer rapid execution and network resilience, compared to incumbent on-premises solutions. On the other, they give providers too much influence over the system and place too much trust in a single platform.
For DEA partner countries, the solution is clear: Software-defined networking (SDN)—which allows companies to turn up connections in multiple clouds with a click of a button and without having to deploy physical infrastructure—supports key business functions with multi-cloud deployments that leverage existing infrastructure.
SDN solutions also free financial institutions from the need to predict traffic profiles for years at a time, or get locked into a specific network topology. Instead, they can scale requirements according to usage and enjoy optimal pricing: increasing bandwidth during peak business hours and decreasing it during off-peak hours, all behind the comfort of a computer screen.
Nextgen financial services
According to the use cases recently profiled by the Harvard Business Review, the goal is not simply bringing invoicing, payments and cross-border trading into the Cloud to reduce costs; it is virtualizing these processes to find new revenue opportunities.
For financial institutions in particular, cloud-powered businesses give stakeholders access to non-siloed data, which is the lifeblood of a new generation of hyper-targeted products. Did a customer express interest in a loan? An investment plan for retirement? Customer data, sourced from multiple cloud applications, empowers stakeholders to offer products that holistically fit customer goals. It is what neobanks do so well, and why financial incumbents know cloud-based, data-driven services are the future of its business.
When a country’s digital infrastructure is combined with the rich banking possibilities of Digital Economy Agreements, new revenue opportunities arise.
Starting with digital trust
The technical roadmap we have been describing implies the transformation of nationhood.
With Digital Economy Agreements between countries blossoming, entire nations will open-source their infrastructures to form virtual trade zones. From each analog economy blossom multiple virtualized economies that each retain their individual characteristics while becoming indistinguishable from their core DEA partner.
At the heart of the transformation: Trust. It is the common denominator. The DEA partners’ ability to move forward depends on digital verification that accommodates globally recognized standards for secure cross-border e-commerce, e-invoicing, digital identities, data protection, and e-procurement.
This is no small task. It requires infusing the software-defined multi-cloud networks we have been describing with security that protects banking processes without hampering the ability to respond to ever-changing business needs.
According to a recent Nvidia report on AI in financial services, DEA partners must build the right intelligence into their common roadmap. Along with AI to automate low-level business processes and locate opportunities, AI for security and process-specific tools can protect individual components, as well as create a wider perimeter of trust.
On the network level, the roadmap must allow financial institutions and other stakeholders to choose connectivity that reflects their risk profile and industry standards. For some, a public cloud deployment using internet-based VPN tunnels will suffice. For others, private, dedicated connections are the only option.
The DEA transformation must enable native preference, in addition to what Forrester has called “intrinsic security and privacy.” This final, essential element of a transformed cross-banking roadmap not only creates trade opportunities in digital products and services, it also increases trade in physical goods and services through digital enablers, thereby bringing DEA countries’ transformation strategy back into the real world, where they can see the greatest upside.