Opening trade finance to everyone
In previous blogs, we’ve looked at why Surecomp is committed to supporting seamless, sustainable trade, as well as the importance of enabling ESG tracking and minimising the risk of fraud. This time, we’ll take a closer look at how trade finance technology can enable all participants to trade more effectively, while supporting collaboration across the trade finance ecosystem.
In today’s market, trade finance technology vendors are largely all focusing on the same small group of potential customers. As a result, the number of companies currently served by trade finance technology in Europe may only be around 1,000. This represents an enormous unrealised opportunity: there are around 24 million corporations in the EU, 8 million of which could arguably benefit from trade finance solutions.
So how can trade finance vendors add value to more of these potential customers? While there is much discussion about APIs and MT798s, the reality is that most corporations don’t care about the technicalities of how to connect to a trade finance ecosystem – they just want to use the service as easily as possible. That’s why Surecomp is focusing on solutions that have mass market appeal because they provide a seamless user experience and are as easy to use as downloading an app on your mobile phone.
For example, vendors that incorporate Legal Entity Identifiers (LEIs) into trade finance software can enable users to validate the identity of their trading partners more easily, thereby enhancing data quality and trust within the system. Likewise, integrating data providers into trade finance technology can enable banks to carry out compliance checks on data such as container information and shipping information.
We believe that trade finance technology should be open to everyone. And our definition of ‘everyone’ includes a vast group of corporates, from small businesses to MNCs, as well as banks, non-bank financial institutions, insurance companies, investment funds and asset managers.
Insurance companies, for example, can act as providers of finance or security to trade finance transactions. Under Basel IV, banks will need to set aside more capital for their trade finance commitments – but insurance companies, which are managed under Solvency II, won’t be subject to the same requirements. By including insurance companies on the platform, vendors can provide support for smaller companies that might struggle to find a bank to finance their guarantees.
There’s also much to be gained by bringing together buyers and sellers of trade finance assets. Many investment funds and asset managers are looking to invest in trade finance assets – so why not include these funds in trade finance platforms? By doing so, trade finance vendors have an opportunity to reduce transaction costs for smaller banks that lack the balance sheets needed to finance trade finance assets and hold them to maturity.
On another note, if trade finance technology is to be accessible to everyone, it’s essential that cost is not a barrier. One way to overcome this is by adopting ‘freemium’ business models, so that any bank or corporate can take advantage of a free plan to access trade finance technology.
Last but not least, modern trade finance solutions need to enable parties to collaborate more effectively with each other.
For example, guarantees are often held up by inaccurate data, not least because these are typically sent as PDF attachments by emails. The resulting inaccuracies lead to delays and extra work for the bank, particularly if guarantees have to be replaced or amended. But what if a platform could enable the applicant and beneficiary to collaborate on the details of a guarantee right at the beginning of the process? Those details could then be agreed before the bank even gets involved – making the process easier for everyone involved.
The way forward
In conclusion, we believe in enabling sustainable and seamless trade any way we can. Next generation trade finance technology needs to incorporate everything from ESG tracking and fraud prevention to collaboration tools and a freemium business model. What’s more, embracing SaaS delivery will mean that participants can access their platforms without having to fulfil any technical requirements.
Get in touch if you’d like to hear more.