Trade Finance – Future
Today, most advances in trade finance technology focus on digitizing key trade documentation like invoices, purchase orders, bills of lading, airway bills, and certificates of origin, for faster processing and more efficient verification of compliance with customs and international trade regulations. Banks benefit from decreased operational costs and the ability to scale growth without increasing headcount. But a new wave of technology may spell good news for international businesses – particularly small and medium-sized enterprises (SMEs) – that look to trade finance for help in facilitating cross-border transactions.
GLOBAL CHALLENGE AND TECHNOLOGY:
The global challenge in meeting trade finance demand centers around the high costs of assessing risk and complying with international regulatory requirements. Today, such processes are largely manual. HSBC processes more than 100 million pages of trade documentation each year manually. The implementation of paperless transactions is a well-regarded solution. The Asian Development Bank report notes that 80 percent of banks believe digitization will reduce the cost of meeting regulatory requirements, while 66 percent agree new technologies will enable more efficient assessment of SME risk – and both would help open doors to more trade finance opportunities.
To get to those opportunities, technology companies like IBM, are building products or services to help navigate international trade complexities. many collaborates with banks and corporations to digitize processes, mitigate risks, and cut expenditures. In the Asian Development Bank survey 70 percent of respondents said such an approach would help reduce trade finance gaps. Many companies, provides alternative funding options outside the traditional bank financing system. The 2017 trade finance report indicates fintech companies with a focus on collaboration through digitization have a strong footing for long-term success. Overall, fintech saw an influx of $13 billion in venture capital invested in 2016.
Fintech companies approach the process of digitization in a variety of ways, including optical character recognition (OCR), machine learning automation, and distributed ledger technology like blockchain. The latter stands out as one of the most promising; blockchain technology has the potential to not only lower costs for banks, but also increase the speed and security of transactions for buyers and sellers, automation through the combination of OCR and machine learning technologies offers promise as a cost-saving measure for banks. Though still largely conceptual, such advancements would take current OCR technology – which often requires manual intervention to recognize text from paper documents and translate it to a computer-readable format – to the next level by removing almost any need for manual intervention.
However, despite an increase in banks implementing new digitization technology in 2016, that impact has not yet manifested in the real world of international trade. While most welcome the transition toward a paperless future in trade finance, adoption needs to be universal across all parties in the supply chain for such a program to begin paying dividends to international traders.