A business man working on a tab to digitalize the trade finance

Digital Trade Finance: The Key to Banking’s Future

Trade financing is an important job that banks all over the world do. It is a major financing option for businesses and improves the whole global supply chain. In 2020, the size of the international trade finance market was worth $44,098 million. By 2030, it is expected to be worth $90,212 million, with a 7.4% CAGR. You can check the World Fintech News (https://worldfintechnews.com/)website to get more recent updates.

Banks can make a lot of money by helping businesses get the trade financing they need. But because of conventional, inefficient processes, banks sometimes take advantage of the chance. A research study by the Asian Development Bank found that “more than 70% of banks surveyed see a shortage in meeting the global market’s trade finance needs.” To get a significant market share, banks need to update their leveraged trade to create and make it quicker, smarter, and more reliable. The key to helping banks reach all of these goals and more is digital transformation. Let us see how.

A Brief on Digital Transformation in Trade Finance

Trade tensions are progressively getting worse. Causes include unplanned changes in geopolitics, new rules, sanctions, and the effects of the pandemic. As the technological age sweeps through the banking industry, corporate leaders seek new ways to update their trade finance operations. International trade banks are more conscious than ever of how important digital operating models are and how much stability they can bring.

But because the process is done by hand and a lot of people are involved, business leaders often have to deal with a wide range of problems. Also, the day-to-day difficulties are made worse by the different compliance assessments and the fact that stakeholders don’t always work together smoothly.

Top 3 Reasons for Banks to Update Trade Finance

Listed are the top reasons why banks should update their trade finance procedure:

Efficiency & Optimisation of Processes

During a trade transaction, many things that aren’t always connected happen. This is because banks use different systems to do similar things, which leads to work being done twice. The least automated part is starting a trade transaction, which can take up to 60% of the time it takes to process a transaction. Also, these processes are still slowed down by conventional, paper-based processes and processing that has to be done by hand. These processes need to be improved and made as efficient as possible.

By changing the way, banks can take in documents and automatically extract and process data at all times. They can connect incoming pathways for omnichannel emergence through a mobile, web portal, SWIFT, and email. Using features like auto-doc-check to see if documents follow different rules will help banks get rid of manual touchpoints in trade processes and speed up the whole thing.

Controlled Financial Fraud

As international trade has grown, it has become more appealing to launder money through trade. Digitizing trade finance processes can help stop money laundering and help small and medium-sized businesses (SMEs) take advantage of exciting global business opportunities and make more money. During the COVID-19 period, the number of vulnerable businesses has grown significantly. Seventy-four percent (74%) of the more than 5,600 SMEs that EY surveyed around the world in 2021 saw their revenues, sales volumes, and profit margins go down because of the pandemic.

Illegal exchanges are probable to go unnoticed because trade is growing, and trade finance rules are hard to follow. A manual approach to conduct can take up to 30% of a bank’s trade operations capacity. Trade transactions undergo compliance reviews two to four times. Small and medium-sized businesses quickly go digital and use e-commerce and platforms to make more money. Banks can learn more about SME customers and focus on suspicious behavior by using the huge amounts of data that digital customers generate.

Risk Mitigation
Optical character recognition, accounting data, and many specialized databases with information about corporations, complex legal entity links, and ownership components are examples of user information used in the trade finance procedure.

Access to more data helps fight against financial crime and lets clients be more accurately grouped, and gives a better idea of where risks are concentrated. By modernizing the process, financial institutions can help small and medium-sized businesses (SMEs) get through tough economic times and keep them safe from illegal activity by slowly shifting their trade finance restrictions.

A Business man used transaction through bank application

All About Effective Lending Decision-making & Superior Customer Experience

The biggest problems banks have to deal with are improving service levels, growing the size of their operations, and making sure they follow regulations without spending more money. With an excellent trade finance solution, you can get access to your customers’ accounting data in addition to current company information, like the business name, phone number, address, credit risk score, and records on complicated legal entity relationships and ownership structures. Using built-in analysis and monitoring tools, banks can also make lending decisions faster and with more information.

Customers interested in technology today expect banks to offer solutions that make it easy for them to link with the bank through handheld devices and web portals to complete their global trade transactions. Even though banks use their entire banking system to keep track of customer accounts, loan transactions, credit limits, and most trade processes are still done by hand, in pieces, and on paper.

By digitizing these procedures, banks can manage the whole customer journey from start to finish and offer services and information to customers anytime and anywhere. They can let you start a transaction through multiple channels and give you real-time reports and SWIFT notifications through a customer portal. With automated processing, more involvement from specialists, and tracking, banks can ensure their customers’ journeys are complete.

If banks don’t update the way they handle trade finance, they could lose market share to newer financial service companies that can offer a better experience. A survey by EY found that 55% of SMEs think banks are taking too long to figure out how risky their credit is, and 36% are thinking about switching banks.

Banks need to invest quickly in the right approach that can change the whole trade finance process. Also, the digital transformation party must make sure that systems for starting trade transactions, processing transactions, and managing documents can all be found on a single platform.

Wrap Up
For banks to help domestic and international trade go smoothly, they need to modernize the whole trade finance process from beginning to end. This is especially true as the industry continues to use new technology. For their modernization efforts to get off the ground, banks need to identify the appropriate digital transformation companion and implement a solution that works well with their existing apps and has new technologies like low code and AI/ML. The approach should be safe, legal, and automated from start to finish, from creating the loan to collecting it.

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