Trade finance has long been of vital importance to the world economy. However, over the last few decades, its role in globalization has grown significantly. Indeed, technological innovation, shifts in corporate behavior, regulatory changes and increasing market competition are fundamentally changing the trade finance market. With an expected increase in the compound annual growth rate of more than three percent over the next five years, a wave of industry alternatives will emerge. These industry alternatives are likely to create a new set of challenges and risks.
So, how do banks stay relevant—and profitable? The key to competitive positioning will be adopting the right mix of technology and business innovation to offer greater value to customers.
Emerging trends and the role of digital technology
Trade finance is going digital—fast. Technologies such as blockchain, artificial intelligence (AI), the Internet of Things (IoT) and machine learning (ML) hold the promise of solving many banking problems and reshaping trade financing. In the pursuit of digital trade and, by extension, the digitization of trade financing, there are significant opportunities for banks to explore:
- Online platform sophistication can help banks address client demands with better monitoring of all trade transactions. This will reduce implementation time and cost, and promote innovation.
- An e-marketplace allows buyers and sellers worldwide to list assets for sale, bid for assets, negotiate better pricing and exchange relevant information.
- Blockchain solutions can help provide enhanced security and stability through a distributed, secure database.
- The IoT helps provide an integrated network of devices embedded with software and sensors that collect and exchange data. Combined with a standardized 5G network, it will significantly enhance support for bandwidth-intensive content, large-scale sensor arrays and low-latency remote-control applications.
- Smart automation and cognitive RPA can increase productivity, help reduce operational and compliance risks that arise from paper-oriented tracking processes and manual interventions, and improve the accuracy of complex business processes. This will boost cost savings and customer satisfaction.
- Data analytics can help banks effectively and efficiently monitor trade transactions, offering clients real-time insights and a holistic view of metrics related to charges, transaction failures, syndicated guarantees, account debtors and more.
- Open APIs (application programming interfaces) can help accelerate the benefits of digital transformation by acting as plug-and-play interfaces between different systems and embedded data.
Navigating the road ahead
With global trade on the rise, banks will play a crucial role in facilitating financing, payment execution and risk mitigation. However, to build business value, they should align their implementation plans to their long-term digital strategy. Their success will depend on rapidly changing market trends and their agility in responding to these trends.
Competition is increasingly fierce. To stay ahead of the game and reduce their risk, banks need to move fast and leverage the opportunities ahead of them. This requires a holistic view of business priorities as well as a more collaborative, customer-centric strategy focused on innovation.
To learn more about how to digitally transform your trade finance systems and operations, register to read our new report, Banking on Technology to Power Up Trade Finance, or reach out to me via LinkedIn.
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