Trade Finance, Digitization & Supply Chains – Where Next?
The emergence of Fintech has created an entirely new landscape that has digitally revolutionised and disrupted legacy processes across the financial services industry. Utilizing cutting-edge technology and pioneering new digitization approaches has benefitted all sectors and will be critical in the development of digital trade finance and supply chains.
Fintech has profoundly impacted financial institutions’ operations across the board, from payment processing, lending, customer care and support. The Asia-Pacific region has adapted fintech services relatively early on and in a manner that is superior to that of the rest of the globe.
It’s that exact transformation in traditional retail finance that needs to spill over onto the trade finance space.
Global economic growth and competitiveness are driven by trade, which serves as the economy’s “lifeblood”. It encourages a level playing field. It propels both innovation and efficiency in the workplace. There is a positive correlation between increased trade activity and increases in employment, wages, and investment.
Trade finance is essential to international commerce at every step of the worldwide supply chain. Digital trade finance guarantees that purchasers acquire their commodities and that vendors receive their payments. Digitally facilitating transactions by providing enhanced visibility, transparency, reduced risk, ensuring liquidity and cash flows.
To put it another way, import and export of products and services cannot occur without the availability of trade financing. Due to the continued impact of the pandemic and other geopolitical events, the world faces a vast and ongoing trade finance gap. This gap according to some estimates, may be as high as $6.5 trillion.
This risk aversion on the part of global banks although is understandable it does however requires corrective action. Multilateral development banks can provide support of critical importance in the short term. When it comes to the dissemination and management of risks across institutions, new platforms have the potential to play a significant role.
The “procurement super-cycle” at banks is expected to continue significantly after the pandemic has passed. Banks, authorities, border officials, trade groups, and corporations, the entirety of the trade ecosystem, must collaborate to emphasize innovation and develop efficiencies. Only then will they be able to enjoy the advantages of new technology fully.
Digital trade is a key enabler of sustainable development of digital transformation of economies and therefore digital trade rules should be future-proofed and responsive to innovation and emerging technologies in the field of digital trade finance.
Digital trade finance & facilitation are key pillars for the future of international, national and local progress. Paperless trading is one of those key pillars. Legal frameworks have to support the acceptance of such digital documents, which intern support digital trade finance.
Banks may be able to drive intelligent models using new platforms, which are tools that can aggregate and analyze massive volumes of data in real-time. This will allow banks to innovate financing solutions in the same way their consumers innovate regarding products.
These evolving business models are ideal candidates for innovative financial solutions from financial institutions. Even though the advantages of using digital trade finance are obvious, onboarding all the stakeholders involved in a transaction can be complex and time-consuming.
There are also repercussions for banks, which need to ensure that their customers continue to receive the highest level of protection possible in terms of confidentiality and authentication, the transferring of timely and accurate data records, adherence to applicable laws and regulations which are changing constantly.
Even while the length of time for trade transactions is often far shorter than the length of time for other financial transactions (on average, three months), there is still room for improvement in terms of settlement timeframes, irrespective of the actual movement of products.
Increased flexibility and receipt of monies by the seller are both favourable features for corporate buyers. Despite the difficulties prompted by the global epidemic, the crisis has also strengthened an urge for financial institutions, international bodies, and technology developers to collaborate both to promote a substantial restoration and to build an even greater buying and selling ecosystem around the world.
Digital Trade Finance (DTF) is the next frontier of digitization that is so relevant to today’s supply chain situation. All parties involved in international trade would benefit from systems that leverage numerous data sources and bring them all together into one place and wrap it all up together with business flows and smart integration.
Key objectives of any new system
- 1. Optimise & make cash flows more predictable
- 2. Make it easy to confirm the legitimacy of the buyer/seller
- 3. Finance funding requests within 5 minutes
- 4. Funding facility approvals within 48 hours
- 5. Simplify Letter of Credit processes
- 6. Mitigating or reducing credit risk
- 7. Streamline invoice payments
- 8. Reduce payment disputes through transparency & automation
- 9. Free up current lines of credit & reduce exposure
- 10. Seamlessly tracking of shipments
At Smartlogiq we are excited about the various innovative models in trade finance and supply chain optimization, with our experience in trade single window (TSW) and finance correlation, we’re able to accelerate your trade finance project with our specialist business architecture and software team. Get in touch with us to discuss your exciting initiative.