Five Reasons Banks Must Digitally Transform the Trade Finance Process Now

Trade financing is a critical function performed by banks worldwide. It serves as a major source of capital for industries and facilitates the entire global supply chain. The global trade finance market size was valued at $44,098 million in 2020 and is projected to reach $90,212 million by 2030, registering a CAGR of 7.4% from 2021 to 2030.

A huge business prospect lies ahead for banks in serving the growing trade financing needs of industries. However, banks often fall short in seizing the opportunity due to inefficient, legacy processes. In fact, a survey by the Asian Development Bank revealed that “more than 70% of surveyed banks see a shortage in servicing the trade finance needs of the global market.”

Banks must modernize their legacy trade finance process and make it faster, smarter, and more credible to capture a lion’s share of the market. Here, digital transformation is the key that can help banks achieve all these goals and more.

Let’s have a look at five reasons why banks must digitally transform their trade finance process:

1. Complex Compliances

To facilitate trade transactions, banks must fulfill various obligations and comply with regulatory requirements like SWIFT, ICC, UCPDC, etc. These compliances are complex, and the complexity aggravates when banks need to adhere to different regulations across geographies. Moreover, these requirements are periodically revised, giving banks little time to adjust. Banks must embrace digital solutions like an auto-document check of import/export documents to ace compliance and enable flexibility to modify their processes when required. It will help banks ensure adherence to SLAs and regulatory requirements by implementing checklists, efficient tracking of credit documents, and internal controls.

2. Manual, Paper-based Processes

Trade finance is document-intensive and involves processing various financial and non-financial documents. However, these documents are largely paper-based and hurt banks’ ability to facilitate trade due to slow processes, cost overruns, and the risk of information loss. As documents are central to trade finance, banks must digitally transform their document-centric operations and become paperless to enhance employee productivity and stay agile. Investing in tech-enabled digital solutions like smart data extraction with OCR-based scanning will help banks obliviate manual, paper-based hand-offs and errors.

3. Need for Risk Mitigation

The trade finance business involves many financial and non-financial risks. While validating documents and critical information provided by various stakeholders, banks must exercise extreme caution to prevent economic and reputational loss. To mitigate these risks, banks must empower their people and systems by transforming their processes and investing in intelligent, new-age technologies like artificial intelligence (AI) and machine learning (ML). It will augment banks’ decision-making capabilities while analysing customer risk profiles and historical transaction patterns. Furthermore, it will help banks ensure faster risk assessment and accurate processing.

4. Lack of End-to-end Process Optimization

From trade origination to processing, multiple processes need to work in tandem for a trade transaction to be successful. However, these processes are often disjointed as banks rely on legacy IT systems or deploy disparate applications to solve their needs. These fragmented processes lead to increased spending and poor efficiency. Also, there is less cohesion and poor coordination between different departments. Banks must invest in a unified digital solution to streamline their end-to-end processes and facilitate inter-departmental collaboration, accelerating overall operations.

5. Need for Anytime-Anywhere, Omnichannel Services

As geographical boundaries and time zones have become obsolete today, customers expect a full package of services from their preferred location, medium, and time. And the expectations are no different for trade finance services. To stay on top of customer expectations and gain a competitive advantage, banks must invest in new-age technologies and ensure anytime-anywhere access to services and information. With a fully digital environment, banks can enable multi-channel transactions. For instance, omnichannel trade origination through the web portal, mobile, SWIFT, email, and branch walk-ins.

The Final Word!

Modernizing the end-to-end trade finance process is a business imperative for banks to facilitate domestic and global trade seamlessly, especially considering ongoing technological advancements in the industry.

To spearhead their modernization initiatives, banks must find the right digital transformation partner and implement a solution that seamlessly integrates with existing applications and is equipped with new-age technologies, including low code and AI/ML. The solution should be secure and compliant and must ensure end-to-end automation, from origination, issuance, and amendment to the collection.

Authored By: Sunil Pandita, Vice President—South Asia, Newgen Software