Bring trade finance into the 21st Century with an as-a-service approach

 While our increasingly digital world runs on global trade finance, trade finance is a process that has remained significantly analog. And such chasm between the two threatens global growth and limits opportunities for corporate banks and their clients.

 

Moreover, It is projected by the Boston Consulting Group that the trade finance market will grow by more than 50 percent by 2030—“bringing the global revenue pool for the industry to $68 billion in 2030.” This means there would be an additional $23 billion in revenues in play for trade finance players compared to 2020 levels of $45 billion.

 

However, a sizable gap in trade finance availability threatens this rosy scenario. A 2021 Asian Development Bank[1] study estimated that the trade finance availability gap reached $1.7 trillion in 2020, representing 10 percent of global trade.

 

Time to modernize—Trade-finance-as-a-service

Many factors contribute to the trade finance gap, and one important contributor is—lagging process modernization. While the financial and corporate sectors are largely “all-in” with digitalization, the trade finance segment has only begun to test the waters. The complex trade finance process, which involves intricate workflows spanning multiple parties and geographies, still includes significant manual work.

 

At the same time, corporates are under increased pressure to manage trade finance operations efficiently and adapt to changing environments quickly. Therefore, banks must offer trade finance solutions that can be tailored rapidly to meet the dynamic shifts in their corporate clients’ requirements. This is where a trade-finance-as-a-service approach is needed.

 

Now is a ripe time for trade-finance-as-a-service to make its appearance. On one hand, customers want trade finance to move at that speed of their business and demand greater insights into their capital and operations. On the other hand, relationship managers are looking for expanded visibility and automation to enable them to provide the value add that today’s corporate clients increasingly expect from their trade finance banking partners. In this environment, trade-finance-as-a-service is primed to gain significant momentum.

 

This innovative model encompasses far more than automating letters of credit. Instead, it requires integrating trade finance with the entire corporate banking ecosystem, from credit and supply chain finance to credit, cash, risk management, etc., into a trade-finance-as-a-service model.

 

Tell me what you really want

Corporates and their banking relationship managers have somewhat different needs when it comes to trade finance. Clients increasingly require real-time visibility into the lifecycle for more informed decisions, template management for greater efficiency, and simplified transaction initiation—all accessible from an easy-to-use interface.

 

Relationship managers have their efficiency and transparency priorities. They seek centralized operations management and highly configurable workflows. They’re also looking for a robust and user-friendly document handling interface with support for quick request registration. Further, they want the ability to support complete relationship management from a single platform and the analytics needed to deliver value-added insight.

 

More than a label—Look deeper

Not all trade-finance-as-a-service solutions are created equal. For example, some only automate parts of the process, such as a letter of credit management. While these point solutions can certainly yield incremental benefits, they cannot optimize value and efficiency by modernizing and introducing automation to the end-to-end lifecycle for a wide range of trade services, such as guarantees, documentary credit, and collections. In addition, a complete as-a-service solution must also address other trade finance business processes such as import documentary credits, import documentary collection, export documentary credits, export documentary collection, bank guarantee issuance, and bank guarantee advice.

 

Several critical characteristics and features define a true trade-finance-as-a-service model. They include:

• A microservices architecture that prevents the need for a disruptive, risky, and costly rip-and-replace approach to updating a bank’s IT infrastructure. This model affords much-needed flexibility to make necessary changes, mitigate risk, and minimize disruption as organizations migrate to the cloud.
   
• A configuration-based deployment model that eliminates custom deployment and provisioning costs.
   
• Customizable templates that accelerate and simplify processing of trade transactions that recur periodically, such as issuing letters of credit and guarantee. Users must be able to easily upload, view, and download documents during the transaction.
   
• Powerful workflow management that enables banks to automatically create, track, and manage service-level agreements and gives them a complete, multi-channel visibility into tasks, time spent, and bottlenecks. All operational flows should be designed and sequenced based on the respective SWIFT tag. Additionally, field names should be grouped as per business requirements to facilitate efficiency and minimize training requirements.
   
• Integrated and robust risk management with extensive support for limit verification, earmarking, and an approval hierarchy that allows users to take exceptions such as know your customer (KYC), limit, and amount block exception into account.
   
• Seamless process digitization with ready-made integration adaptors. The solution must be flexible, agnostic to back-office applications, and integrate easily via Rest APIs with any third-party systems, such as limits, collateral, KYC, AML, and sanctions applications. These capabilities facilitate data consumption and risk management.