How Technology Will Continue to Shape the Trade Finance Market
The global trade finance market size is expected to grow by
USD 8.47 billion during 2018-2022. Technavio’s market research report offers a complete analysis of the market based on trade finance instrument (traditional
trade finance instruments, supply chain finance, and structured trade finance)
and geography (the Americas, APAC, and EMEA). The trade finance market research the report analyses the market’s competitive landscape and offers information on
several companies including BNP Paribas, Citigroup, HSBC Group, JPMorgan Chase,
and Wells Fargo.
Because of the
undergone changes in the trade finance market in the past few years direct
results of several different factors, including changes in regulations,
corporate behavior, and increased competition. The largest impact on the
market has come from headways in technology. Technology integration into trade
finance has streamlined processes, improve relationships between banks and
finance organizations, and more secure transactions.
Challenges faced
by the trade finance market
The challenge of
incorporating technology into trade finance is two-fold. To start with, it is
hard to get all parties on board, which incorporates every one of the buyers
and sellers. Total adoption and agreement are the only way for any technology
to work flawlessly, efficiently and adequately. Furthermore, technology cannot
have a “one size fits all approach” when it comes to dealing with trade finance
processes, as
there are various necessities dependent on the nature of transactions and the
operations of the banks and trading partners. However, the trade finance market also presents a great deal
of opportunity, as it can benefit the most from the type of change that
technology can offer.
Blockchain
technology and Internet of Things: just the beginning
One example of how
technology has been changing the trade finance can be found in the
implementation of blockchain technology by banks and technology firms, which is
a growing trend. Blockchain technology, designed for bitcoin transactions, is
used to make transactions safe and easy by remarkably reducing the cost and time
associated with them. This can be achieved through a shared database, which facilitates
banks and all participating organizations to trace all transactions made. The
goal is to eliminate paper-based transactions, which is one of the major
sources of fraud in trade finance. Bank of America Merill Lynch and HSBC have
come together to develop a blockchain prototype exclusively designed to enhance
trade finance processes. Additionally, according to an article published by
Law360, tech firm R3 in conjunction with 15 banks has created two blockchains, solution models.
Perhaps not as
obvious but still significant, the Internet of Things (IoT) has and will continue
to influence trade finance. Technologies such as iBeacons and RFID permit for painless
transactions and ownership transfers, as well as advanced tracking and
analytics. And we have only just begun to scratch the surface in terms of utilizing
their potential. Data sharing is also a highly important component to trade
finance operations, which is where cloud-based software solutions come into
the picture. That said, the software can be just as tricky as hardware. While it can be
much more difficult to get companies like banks to adapt to a new piece of
technology, the problem with software is that many vendors presently provide
one-off solutions that aren’t tailored to specific trade finance requirements.
Further, the Execution process itself can be costly and can disrupt existing
processes. Vendors will need to determine the appropriate level of
customization for their products and offer solutions that are more than just a
software package.
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