The Role of FinTech Platforms in the Trade Finance Industry

Trade is the engine that drives development and competitiveness in the global economy, thereby encouraging fairness, creativity and productivity. When trade flows in a rules-based system, jobs, wages and investment accelerate enormously.

By Swati Babel, a cross-border trade finance specialist and VP at Triterras

Trade finance supports trade at all levels of the global supply chain. Trade finance ensures that buyers get their products and sellers get their money by adding liquidity and cash flow and reducing risk. Simply put, trade finance is necessary for the cross-border movement of products and services.

With the global trade finance market estimated to reach $85.85 billion by 2027, growing at a CAGR of 7.06%, it is becoming an integral part of every country’s economy. The world’s vast domestic market and a large pool of skilled workers make trade finance an attractive destination for foreign investors. However, the complex regulatory environment and the lack of access to finance limit the expansion of business operations across different markets.

However, the rise of FinTech platforms over the years is paving the way to simplify and seamlessly align the trade finance industry. FinTech platforms offer much-needed solutions for businesses by offering innovative financing products that are tailored to business needs. These platforms help businesses overcome the challenges they face in accessing traditional bank financing and play a key role in promoting economic growth and development. The platforms provide businesses with the funding they need to grow and expand their business, and also help businesses manage and improve their financial planning.

The role of FinTech platforms in the trade finance industry is to provide an efficient and cost-effective way for businesses to finance their international trade transactions. The platforms offer several advantages over traditional banking products, including:

• Access to capital: Fintech platforms give companies access to capital that they may not be able to obtain through traditional banking channels. This can be especially useful for small businesses and startups that may not have the collateral or credit history required by banks. In addition, Fintech platforms provide businesses with increased access to funding, which can be used to finance trade transactions. Another key benefit of fintech platforms is their ability to connect borrowers and lenders from around the world, giving borrowers greater access to capital. In addition, fintech platforms typically have lower transaction costs than traditional banks.

• Flexibility and cost-effectiveness: Fintech platforms offer more flexible terms than traditional bank loans, which can be important for businesses that have irregular cash flow or are expanding into new markets. Fintech platforms offer flexible products and services that can be customized to meet the specific needs of businesses. Fintech platforms offer cost-effective solutions that can help businesses save on costs associated with financing trade transactions. Different fintech platforms have relationships with several lenders, which gives them the opportunity to get customers the best possible terms for loans and can often provide more flexible repayment terms than banks. This means that businesses can choose a repayment plan that works best for them, rather than being tied to a rigid repayment plan from a bank.

• Agility and efficiency: Fintech platforms usually offer a faster and more convenient application process than banks. This can be critical for businesses that need to quickly raise funding for time-sensitive trade transactions. Fintech platforms for trade finance are much faster than going through a bank or other financial institution because the process is often much simpler and there is less paperwork involved. Fintech-led events and activities such as the Singapore Fintech Festival also enable an ecosystem of networks and partnerships. Due to these reasons, banks and financial institutions with sufficient capital often join forces and participate with the Fintech platforms for lending/co-lending opportunities. In addition, they also enable businesses to streamline their trade finance operations and improve overall efficiency. Innovative solutions like AINOCR or Electronic B/L help digitize analog data, such as paper documents, bills, etc. These platforms provide valuable data and analytics to help businesses make informed decisions about their trade finance needs and help businesses streamline their operations by to automation of key processes.
• Improved security: Fintech platforms often use cutting-edge security features, such as blockchain technology, which can provide an extra layer of protection for businesses and their customers. Many platforms use such next-generation technologies to protect borrower information and ensure that transactions are processed securely. This can give borrowers peace of mind when taking out loans or making payments.

FinTech platforms are playing an increasingly important role in the trade finance industry. By providing a digital infrastructure for the entire supply chain, from manufacturers to retailers, they make it easier for businesses to connect and transact with each other. This is particularly important in today’s climate, where businesses are under pressure to move faster and be more agile. FinTech platforms can help them do this by streamlining processes and reducing costs. However, while credit assessment and due diligence should be done manually to avoid trade-based money laundering, Fintech platforms are changing the landscape of Global Trade Finance.