The global pandemic and the subsequent restrictions of 2020 have created a lasting impact on global trade and the way business is conducted around the world. Combined with the recent scarcity of financing solutions in general, and even trade finance specifically, serious damage has been done to economies. In the post-pandemic world, new technologies and a more holistic approach to trade financing are expected to rectify these issues and become the most popular options. As a result, new trends in trade and trade finance are beginning to appear.
Digital transformation in the supply chain
The need for digital transformation in the trade finance sector has been rising for quite some time now, but its importance has only been highlighted during the COVID-19 pandemic. Digital solutions have now become a true necessity, instead of only being a convenient benefit. The overall impact of the pandemic and the subsequent changes in compliance measures were the main drivers of digital transformation, but there is increasing interest from the user end as well.
Corporations are fed up with traditional operations, and as many of their employees and partners are in different time zones and countries, digitization is even more important. In turn, financial institutions are attempting to keep up. Rather than presenting it as a unique selling point, technology is slowly becoming the standard, allowing collaboration and the overall customer experience to differentiate trade finance providers.
Collaboration and standardization in FinTech
There is also increasing demand for FinTechs working in the trade finance sector to begin collaborating and attempt to standardize their practices to make the user experience more seamless for suppliers, buyers, and funders. The advantages for end-users are quite evident, but system implementation might be a long process as contracts are drafted between multiple parties to ensure streamlined systems and operations.
Certain FinTechs are currently in preliminary talks about how to implement these solutions, even though most companies still have issues with shifting from a competitive to a collaborative mindset. It could be possible with the help of application programming interfaces and integrations, but not many FinTechs are confident in the safety of sharing processes when integrating with other companies. This makes them hesitant to make the necessary steps toward making partnerships.
Established trade finance providers are thriving
When it comes to selecting lenders and providers, it seems like companies are still making a safe choice. Deciding to find the right trade finance solution with an established provider remains the most popular choice, likely due to the increased safety and wider product range that these financial institutions provide. It’s not just about covering unpaid invoices and enabling seamless trade anymore.
Businesses dealing in importing and exporting now want higher freedom and more choice in terms of trade finance solutions. They want to be able to set their own trading terms, partner with the right international and local business partners alike, diversify their financing solutions, close their working capital gap, and gain the power to go global. Trusted and respected trade finance providers allow them to do just that, which might explain their continuous popularity among organizations.
Banks are still dominating the service segment
When it comes to the service provider segment, corporate banks are still dominating the market. Although the favorable environment has been attracting an increasing number of capital market investors and technology-led platforms in recent years, the market is still controlled by the world’s largest banks. Every trade transaction seems to be actively intermediated by these powerful global corporations. However, that’s not to say that nothing is changing in this space.
Due to the increasing pressure from clients, banks were forced to offer more favorable services and become more efficient altogether. As a result, the number of invoices and programs that are financed through trade finance has significantly increased since the pandemic. Existing solutions were also expanded to cover more suppliers. While the restrictions and lockdowns of 2020 might have affected global trade in quite unprecedented ways, innovative products, better operating models, and digitalization efforts are now enabling the trade finance sector to grow once again.
The US controls the North American region
Sophisticated, state-of-the-art technology is playing quite a significant role in trade finance at the moment, but nowhere quite like in the United States. Here, blockchain technology will likely be implemented in trade finance in the near future, which is expected to create new and attractive market opportunities.
The increased need for security and safety when trading, the rise in trade financing adoption, tougher competition, and updated trade agreements are all causing the growth of the US trade finance sector. International companies in the United States have already started employing new technologies that promise to increase the transparency and efficiency of the supply chain, and are creating novel digital networks to support trade and finance. The country’s rising total value of global trade imports and exports is propelling the market.
As the world evolves and recovers from coronavirus, global trade continues in a similar manner. However, the pandemic has created the need for new solutions, and the recent trade finance trends are reflecting these novel demands as well.