Trade is the foundation of economies all around the world, with small and midsize businesses (SMBs) dominating the sector at the moment. Although the growth of global trade might have been disrupted in the last few years thanks to unforeseen circumstances, it seems like new opportunities are finally arising in the industry. Financial institutions and international governments are still expected to respond, but investors and SMBs alike are seeing great potential in the sector due to interesting asset classes and innovative products, along with some other unique developments. With that in mind, here are some trade finance trends and predictions we might notice in 2023 and the years to come:
Leveraging new technologies
Novel technologies are transforming all industries around the world, and the field of trade finance is no different. Although not a new technology, the Internet of Things (IoT) is one of the most prominent novelties in the industry that’s commonly implemented across the trade finance landscape today. IoT has risen to prominence quite quickly, most commonly in the form of WiFi-enabled devices and smart assistants. Not only has this helped to streamline business processes, but it has also supported more creative solutions in the sphere of supply chain finance. In turn, effective communication between buyers, sellers, storage containers, and warehouses can be supported more easily, with IoT devices being able to provide real-time information and status updates. This is a trend that will only continue growing in the future as needs evolve.
Using data to support success
Even though the trade finance industry is quickly implementing different technological solutions, most processes in this sector are still outdated, slow, and relatively inefficient. That is why big data will be essential to the future of trade finance, with the goal of changing the present state of affairs. Any business that can utilize digital tools effectively to gather, visualize, and analyze important data from numerous sources will also manage to streamline the processes of credit and risk assessment, connect and integrate various supply chain factors, and drive innovations in the sector in 2023 and beyond. The right data processes will lead to greater automation in the sector, along with improved trade operations worldwide.
Offering global opportunities
With the industry changing and needs evolving, more efficient trade finance solutions are gaining prominence as well. Being more versatile than ever before, these financial products provide greater flexibility and the opportunity to find the best possible partners, all while equally supporting local and global trade. In the future, increased freedom will be another critical factor, when it comes to both the power to close working capital gaps and set trading terms, as well as the flexibility to diversify working capital funding solutions. Empowerment for expanding internationally will also be crucial, aiding in the improvement of professional relationships and business growth.
The rise of investable products
In the trade finance sector, there is also a need to securitize commercial lending products and make them investable. Traditional solutions such as invoice finance, conventionally a paper-based product that enables the factoring of receivables, have now turned into important fintech assets. The implementation of a peer-to-peer system also allows smart investors to invest their capital into future-focused SMBs. In turn, this creates an interesting asset class that comes with significantly fewer risks compared with lending to individual companies. That is why it’s expected that international governments will support this new investing approach in the near future.
The trend of paperless processes
In a world where sustainability becomes increasingly important, companies across the board are now going paperless. In terms of trade finance, this change means that paper-dependent factors like Bills of Lading (BL) and Letters of Credit (LC) might soon be overtaken by their digital equivalents. Many trade companies have already decided to invest in e-BLs and similar electronic documents, which has allowed for increased automation, higher efficiency, and much faster processes. Combined with suitable software solutions, these e-docs could potentially streamline crucial procedures such as anti-money laundering and compliance as well. However, more work is needed to support these operations in terms of suitable legislative efforts.
Considering regulatory issues
The trade finance industry can benefit greatly from regulatory developments, too. Worldwide economic and trade organizations believe that global legal recognition of e-documents and other electronic transactions will be a vital aspect of this important change. At the moment, regulatory discrepancies around the world are already leading to uncertainties. Moving forward, laws will need to be more uniform, clearer, and based on standardized definitions. Some international markets are making legislative efforts in this regard, but a universal approach is still needed on a global level. The private and public sectors will need to cooperate effectively in the following years, as this will be the only way to cause actual change and lead to total clarity worldwide.
With new innovations, technological advancements, and improved processes, trade finance will likely continue growing in 2023 and beyond. However, it might take some time before the industry can completely transform, as certain security risks are still present in the sector and total global uniformity isn’t likely to be supported anytime soon.