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New Technologies Aim to Close the Trade Finance Gap

By Zack Andresen

Banks are leveraging new technologies to expand access to trade finance products, increase security, and promote more transparency for businesses involved in international trade, according to a new report from the International Chamber of Commerce (ICC).1

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.2 Banks benefit from decreased operational costs and the ability to scale growth without increasing headcount.3 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.4

 

Trade Finance: A History of Demand Outweighing Supply

 

A significant gap exists between demand for trade finance and the availability of solutions: 61 percent of respondents to the ICC's 2017 Rethinking Trade & Finance survey say demand for trade finance outweighs current supply.5 Data from the World Trade Organization and Asian Development Bank supports that sentiment: over half of trade finance requests from SMEs go unfulfilled compared to just 7 percent from multinational organizations,6 resulting in an estimated $1.5 trillion gap in unmet global trade finance demand during 2016.7

 

Much of this unmet demand stems from emerging economies like Africa8 and the Asia Pacific region.9 However, the Asian Development Bank's annual trade finance survey revealed the Americas made up 23 percent of rejected requests in 2016, and Europe had 18 percent.10 Globally, the gap in trade finance has had a significant impact: 60 percent of companies with rejected trade finance requests failed to complete the transaction as a result.11

 

The global challenge in meeting trade finance demand centers around the high costs of assessing risk and complying with international regulatory requirements.12 Today, such processes are largely manual. HSBC alone manually reviews and processes more than 100 million pages of trade documentation each year.13 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.14

 

New Technologies Look to Usher In Big Changes

 

To get to those opportunities, a number of fintech companies, as well as traditional technology companies like IBM,15 are building products or services to help navigate international trade complexities. Traydstream, for example, collaborates with banks and corporations to digitize processes, mitigate risks, and cut expenditures.16 In the Asian Development Bank survey 70 percent of respondents said such an approach would help reduce trade finance gaps.17 Another, PrimeRevenue, provides alternative funding options outside the traditional bank financing system.18 The ICC's 2017 trade finance report indicates fintech companies with a focus on collaboration through digitization have a strong footing for long-term success.19 Overall, fintech saw an influx of $13 billion in venture capital invested in 2016.20

 

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.21 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, according to Boston Consulting Group.22

 

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.23

 

Traydstream uses OCR technology in enabling automation and reducing the need for manual data entry.24 However, Traydstream co-founder Uzair Bawany notes that the use of OCR itself implies continued use of paper documents, something his company hopes to move away from by having customers load data directly onto the Traydstream platform.25 Such initiatives align with other fintech companies focused on the goal of creating a paperless international trade environment.

 

The Future Impact of a Digital Supply Chain

 

The movement toward full digitization led by companies like Traydstream and IBM may mean significant opportunity for businesses dealing in international trade. The ICC report projects that an estimated 350 million more businesses could begin exporting as a result of digitization, adding an extra $29 trillion to the digital economy over the next 10 years.26

 

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.27 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.28 Some believe it could take as long as 25 years for that to happen29 while others, like the Boston Consulting Group, anticipate tools like blockchain will make their way into trade finance transactions within the next three years.30

 

The

Takeaway:

New technologies in trade finance look to bring on a future of paperless documentation with the promise of reducing the trade finance gap for import-export traders. While the impact has yet to be felt by businesses dealing in international trade, a significant increase in funding of fintech companies may accelerate the closing of that gap.

Zack Andersen - The Author

The Author

Zack Andresen

Zack Andresen is a business technology writer based in Brooklyn, NY, but currently traveling the world with his wife and son. Learn more at ZackWrites.com.

Sources

1. 2017 Rethinking Trade & Finance, International Chamber of Commerce; https://iccwbo.org/publication/2017-rethinking-trade-finance/
2. Ibid.
3. “Digital Revolution in Trade Finance,” Boston Consulting Group; https://www.bcg.com/publications/2016/digital-revolution-trade-finance.aspx
4. Trade finance and SMEs: Bridging the gaps in provision, World Trade Organization; https://www.wto.org/english/res_e/booksp_e/tradefinsme_e.pdf
5. 2017 Rethinking Trade & Finance, International Chamber of Commerce; https://iccwbo.org/publication/2017-rethinking-trade-finance/
6. Trade finance and SMEs: Bridging the gaps in provision, World Trade Organization; https://www.wto.org/english/res_e/booksp_e/tradefinsme_e.pdf
7. 2017 Trade Finance Gaps, Growth, and Jobs Survey, Asian Development Bank; https://www.adb.org/sites/default/files/publication/359631/adb-briefs-83.pdf
8. 2017 Rethinking Trade & Finance, International Chamber of Commerce; https://iccwbo.org/publication/2017-rethinking-trade-finance/
9. 2017 Trade Finance Gaps, Growth, and Jobs Survey, Asian Development Bank; https://www.adb.org/sites/default/files/publication/359631/adb-briefs-83.pdf
10. Ibid.
11. Ibid.
12. Ibid.
13. “HSBC and IBM develop cognitive trade finance tool,” Global Trade Review; https://www.gtreview.com/news/global/hsbc-and-ibm-develop-cognitive-trade-finance-tool/
14. 2017 Trade Finance Gaps, Growth, and Jobs Survey, Asian Development Bank; https://www.adb.org/sites/default/files/publication/359631/adb-briefs-83.pdf
15. “HSBC and IBM develop cognitive trade finance tool,” Global Trade Review; https://www.gtreview.com/news/global/hsbc-and-ibm-develop-cognitive-trade-finance-tool/
16. “About Us,” Traydstream; http://traydstream.com/#about-us
17. 2017 Trade Finance Gaps, Growth, and Jobs Survey, Asian Development Bank; https://www.adb.org/sites/default/files/publication/359631/adb-briefs-83.pdf
18. “Advantage,” PrimeRevenue; https://primerevenue.com/advantage/
19. 2017 Rethinking Trade & Finance, International Chamber of Commerce; https://iccwbo.org/publication/2017-rethinking-trade-finance/
20. 2017 Trade Finance Gaps, Growth, and Jobs Survey, Asian Development Bank; https://www.adb.org/sites/default/files/publication/359631/adb-briefs-83.pdf
21. “Digital Revolution in Trade Finance,” Boston Consulting Group; https://www.bcg.com/publications/2016/digital-revolution-trade-finance.aspx
22. “Digital Revolution in Trade Finance,” Boston Consulting Group; https://www.bcg.com/publications/2016/digital-revolution-trade-finance.aspx
23. “Digitsing trade finance — a work in progress,” Bank of New York Mellon; https://www.bnymellon.com/_global-assets/pdf/events/digitizing-trade-finance-a-work-in-progress-tfr-march-2016.pdf
24. “About Us,” Traydstream; http://traydstream.com/#about-us
25. “Traydstream launches fintech solution for paperless trade,” Global Trade Review; https://www.gtreview.com/news/global/traydstream-launches-fintech-solution-for-paperless-trade/
26. 2017 Rethinking Trade & Finance, International Chamber of Commerce; https://iccwbo.org/publication/2017-rethinking-trade-finance/
27. 2017 Trade Finance Gaps, Growth, and Jobs Survey, Asian Development Bank; https://www.adb.org/sites/default/files/publication/359631/adb-briefs-83.pdf
28. “Digitsing trade finance — a work in progress,” Bank of New York Mellon; https://www.bnymellon.com/_global-assets/pdf/events/digitizing-trade-finance-a-work-in-progress-tfr-march-2016.pdf
29. 2017 Rethinking Trade & Finance, International Chamber of Commerce; https://iccwbo.org/publication/2017-rethinking-trade-finance/
30. “Digital Revolution in Trade Finance,” Boston Consulting Group; https://www.bcg.com/publications/2016/digital-revolution-trade-finance.aspx

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