APN News

Trade Finance Automation: What Was Once A Convenience Is Now A Necessity

Manish Bharucha, CEO,Kyzer Software

From USD 7,616,520 million in 2019, the global market size of trade finance will reach USD 10,987,510 million by 2026 at a CAGR of 5.4 percent. But do you think market growth can alone promise success for anything? Probably no, right? So, what else do banks need in order to thrive? Yes, ‘automation’ it is! More than being a convenience today, it has become the dire need of the hour. It’s important for banks to position themselves as pioneers in the digitization of trade finance.

Trade finance

Trade finance signifies financing for trade, and it concerns both domestic as well as international trade transactions. Various intermediaries such as banks and financial institutions facilitate these transactions for eliminating the risks of payments and supply. Trade finance is a vital part of exports and imports.

Automation in the sector

When we talk about automation, it seems that the sector is gradually trying to reduce the manual workload and go fully digital. Without a doubt, trading in the international market is packed with uncertainties because exports and imports happen between entities in distant countries. There could easily be an absence of trust between the buyers and the sellers. This is where banks and other financial institutions come to the rescue. They help the entities to reduce the risk factor of trade finance via providing records and documents, including Letter of Credit (L/C) and Bank Guarantee.

L/C mitigates the payment risk as a bank guarantees the amount to an exporter on behalf of an importer after the delivery of goods, whereas Bank Guarantee is an agreement from a lending institution, ensuring that the bank will step up if a debtor is not able to clear all his debts. A lot of paperwork and extensive manual interventions such as document reading and scrutiny, data entry across multiple banks and regulatory systems, sanctions, anti-money laundering checks, and data analysis are involved in the procedure, making it an arduous function. Plus manual processing means that the transactions are riddled with errors.

But when we bring in technology that permits the banks to offer customers a web-enabled interface for conducting transactions online, including requests for Letter of Credit, Bank Guarantee, Regulatory Export / Import Data Management and Foreign Remittances, the trade gets streamlined as well as easier for Compliances and Audits. These solutions secure online requests and transmit them technologically along with documentary evidence. The vulnerabilities, due to the pandemic, have further increased the requirements for such digitized trade finance products.

What was once a convenience is now a necessity

An ecosystem-based offering that caters to the complete customer journey and lifecycle will lead to a new wave of innovation. Let’s dive deep to find out the advantages of automation:

Summing up

Today, the global network focuses on digitization and financing offered through a distributed trade finance platform. By connecting a critical mass of numerous parties in the trade ecosystem, it turns the much-needed digitalization of trade finance into a reality. In the forthcoming years, we will see how the journey towards machine-to-machine trade finance is evolving and how many corporates, banks and third-party service providers are catching up and moving to mass adoption.

Banks and other financial institutions will struggle to keep up with global buyers and sellers if they are slow in accepting these technological advancements.

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