Trade finance is a field within financial services that are still trapped in the outdated use of paper and legacy systems. Leaders within the FinTech industries lament that this lack of innovation is partially to blame for the approximate $1.5 million “trade finance gap” that continues to afflict the market worldwide.
As explained by Tsafrir Attar, vice president of Digitization at Surecomp,
“Today, some documents are still sent the old-fashioned way,” “Sometimes, they’re still sending documents using snail mail.”
Using these antiquated tools greatly delays the process of getting much-needed capital to both importers and exporters to power their businesses.
However, the onset of the pandemic and its subsequent external pressures has pushed many more to digitize their systems. Those players within the trade finance industry such as regulators, banks, and corporates are now ready to adopt new technology and modernization.
Why It’s Taken So Long To Digitize
Trade finance has historically struggled to enter the digital age due to it being part of a “highly regulated area” within the financial services.
One of the major reasons behind this struggle is the concern about security and compliance. However, more regulators are easing their worries as possible technologies such as artificial intelligence (AI) and machine learning (ML) are coming in to offer proficiency, all while safeguarding the integrity of the transactions.
“Previously, regulation was very slow in adapting and approving of different technology. Today, we can see loud and clear, now the regulators are becoming more supportive of this and understand that the only way to help the industry is to approve new tools.”
He continues to relate that, especially during the pandemic, people are seeking solutions. Most companies are beginning to see that resolving this problem begins by “providing digitalization flows and processes” throughout their business.
Even in a strict area of regulation and compliance, there are technologies such as electronic documents and digital structures are becoming more widely accepted and legitimate.
The future seems ripe to usher in new technologies besides efforts of digitalization. As the industry begins to modernize, new and upcoming business models will be able to promote the cash flow of businesses within the global market. Other innovations coming down the pipe include services to encourage “healthier liquidity”. Technology will be at the core and center of this development.
Challenges Generate Opportunity
The global pandemic has brought on unprecedented challenges never before seen in businesses around the world. However, challenges should not mean defeat. They should be seen as an impetus to seek new and innovative ways to improve and problem solve.
Although the trade finance arena has been slow to adapt and embrace new technologies due to strict regulation and compliance, we are now seeing a dramatic shift to a gradual acceptance. Since it is such a complex field, the transition will not be easy and it will certainly not happen overnight. The bright spot is that the industry has recognized its need to improve its current systems and processes.
Furthermore, as it looks to B2C business models, the trade finance industry is beginning to see the importance of providing multiple forms of payments as well as offering payment installments to increase their overall income. In time, there are hopes that they, as B2B providers, will offer their suppliers excellent customer service as well.