The future of trade finance and fintech platforms

Future-proofing Trade Finance through Integrated Platforms

Trade is the backbone of the global economy. Just as it facilitates growth and competition, trade paves the way for innovation and efficiency. A rule-based trading system can do wonders for employment, wages, and investment. 

Bolstering trade at every link in the global supply chain is trade finance. The liquidity, immediate cash flows, and reduced risks offered by trade finance allow buyers and sellers to continue receiving their goods and payments, respectively. 

Although the trade finance industry has historically been slow to adapt to technological innovations, the spread of COVID-19 across the world prompted much-needed change through accelerated digitization and the emergence of new platforms. Such technological advancements, which have primarily been witnessed throughout the Asia Pacific, are likely to influence globally coordinated efficiency in the world of trade.

The 4 leading trends witnessed during this transformative period have spurred an evolution that creates more opportunities for growth and success within the trade finance industry.

1. Coordination among banks, financial institutions, and fintech companies, leading to improved liquidity.

Banks, financial institutions, and fintech companies need to collaborate with each other so that liquidity is available for the entities in most need of it. Though the current decrease in liquidity has not been as bad as the devastating global financial crisis in 2008, the pandemic has pushed financial institutions to focus their funding on established relationships. As a result, many businesses, particularly SMEs in developing nations, are left without options for trade finance. 

However, over the last couple of years, a change has overtaken the traditionally risk-averse financial institutions that were reluctant to serve small businesses. Recent trends have indicated that Asia has been gradually displaying a shift in financial inclusion that presents vast opportunities for fintechs, financiers, and small business owners. This shift creates opportunities not only in factoring and supply chain finance but also in insurance, investment management, capital raising, and payments. Players within the receivables industry expect the factoring ecosystem to undergo notable changes, led by the market in Southeast Asia.

The 4 major benefits that businesses can enjoy as a result of collaborative efforts between financial institutions and technology providers are:

  1. Interoperability – Businesses can access and exchange data across a network of entities involved in the overall supply chain process.
  2. Ease of deployment – Businesses have the option of controlling and managing entire networks of supply chain operations through infrastructures that are on-premise, in the cloud, or a hybrid of the two.
  3. Network connectivity – With a better reach of suppliers, manufacturers, and other players in the network, businesses can efficiently respond to customer demands.
  4. Enhanced data security – Businesses can have better control over the data being exchanged while maintaining complete security.

2. Growing preference for digitization and technological innovation in trade finance.

As an industry that has, for centuries, relied on paper for all documentation purposes, the trade finance sector has been slow to implement digital innovations compared to other sectors. Although efforts to digitize trade finance were not initiated due to the pandemic, it has indisputably been accelerated as a result of the pandemic. This rise in the adoption of technology will continue long after the pandemic has abated. 

In partnership with financial institutions, technology providers can help fill the gaps in trade finance and deliver significant value to the supply chain process. Such vendors have the opportunity to work with various markets and entities, enabling them to apply relevant data in creating marketable products that can achieve the desired results. 

Well-designed technologies can drive efficiency and deliver benefits across the entire trade realm—including players like banks, financial institutions, government & regulatory agencies, corporates, and other trade bodies.

3. Emergence of new fintech platforms and intelligent tools as a result of digitization.

As a matter of course, widespread digitization has led to an increase in product innovation. Recent developments in fintech have given rise to intelligent banking platforms that enable the collection and analysis of large volumes of data in real-time. These platforms challenge conventional structures in the financial and banking sectors and drive a radical shift in the business model, value chain, and market positioning. One such example is banks’ use of granular transaction data to determine how their financing can better support sustainability.

4. Governments harnessing emerging tech to promote global trade and economic growth.

In addition to financial institutions and businesses, many government officials have also expressed an active interest in emerging technologies facilitating international trade.

a. Recently, the Singaporean government developed a new national trade platform to establish a digitalized one-stop shop for suppliers, manufacturers, logistics firms, liquidity providers, and other trading partners. Traditionally, the movement of products and information in international trade has been controlled by tangible, paper-heavy trade documents. However, in a vast global network that includes several parties, paper is not only a huge obstacle to efficient commercial engagement but is also expensive due to long-term storage requirements. With this initiative, the government hopes to minimize such concerns and encourage economic growth by enabling the industry players to collaborate on a common platform.

b. The Bank of China launched a blockchain forfaiting transaction (BCFT) platform to enable forfaiting transactions between banks and companies. The platform, which has since processed trade worth $2.82 billion and gathered more than 30 banking institutions, intends to transform the financing of trade and supply chains.

c. The Chinese government has also launched other initiatives like the Bay Area trade finance blockchain platform, which seeks to improve SMEs’ access to trade finance and enhance trade relations between China, Hong Kong, and other neighboring regions. In April 2021, the government also created and launched a domestic digital currency (*Ledger Insights) which will be issued by its central bank.

How integrated platforms are leading the way to the future.

Integrated Platforms

Today, global trade corporations prioritize integrated platforms and methodologies that can help them oversee all of their supply chain activities from a single location. As such, tools and platforms are designed to deliver simplicity with easy-to-use and flexible modules.

Several companies have tied up with technology partners to develop platforms to augment their existing systems and transform their business processes. Companies that have not yet implemented an integrated trade and supply chain platform face limitations in gaining real-time visibility and making data-backed decisions about their working capital and customer/supplier relationships due to cumbersome manual processes. 

Evidently, it isn’t just companies that will benefit from this two-way exchange of information. Financial institutions that want to stay relevant and meet the changing needs of their corporate customers will eventually lean towards the integration of hybrid solution platforms. 

Fintech companies are offering banks and non-banking financial institutions a great way to take charge of the industry. By designing platforms that enable different plugins from different sources, technology providers offer a future-proof trade finance strategy that will increase third-party platform use in upcoming years.