The World Trade Organisation (WTO) estimates that 80–90% of world
trade relies on trade finance. It is a mechanism that not only ensures security
between importers and exporters but can also extend a line of credit to
companies desperately needing cashflow to get their operations moving.
Pandemic disruptions,
political upheaval and currency fluctuations have made companies more nervous
to trade internationally.
“With every crisis, trust
among the participants goes down and that’s when you reconsider the risk that
is involved in open account transactions,” says Jai Shah, Director Sales and
Product Innovation at Kyzer Software.
“The more insecure these
financial flows to physical supply chains are, the more you want to secure them
with a guarantee” from trusted financial intermediaries. Unfortunately, trade
finance has not always been a straightforward solution due to an excessively
manual process, and a lack of access to smaller corporates who might not have
the know-how to get the best deals.
However, this is a narrative
that Kyzer Software wants to change. “For the last 7 years we have provided
trade finance solutions to banks for transaction processing. Now we are
providing solutions to a far broader space … complete Regulatory Reporting
Suite, Trade Finance Corporate portals as well and growing our solution offerings,”
says Shah.
Why can trade finance be so challenging?
Historically,
trade finance has been tied to paper because it relies on ownership of title
documents, for which it is difficult to implement a universal digital solution.
“As a bank, I have to agree
with my customers, not only on the details of the transaction, but on how we process
and exchanges the transaction details, and the one global standard that
provides interoperability is paper,” says Shah.
“Trade finance has been the
only business where digitisation is attaching a PDF to an e-mail.”
This system is slow because
contracts must be agreed, written, and approved within, sometimes incompatible,
working hours. Guarantees can take days, by which time exchange rates or demand
could have shifted and can result in burdensome fees and time wasted.
Documents can get lost in
the process leading to further delays, poor limit management, or banks chasing
for already paid fees. All these factors create instability and could damage
trading relationships in the process.
There has long been a trade
finance gap between MNCs and SMEs, that makes access far more difficult for
smaller corporates. While a major disparity is due to smaller enterprises
having less data to prove they are a good risk for financing, they also lack
the knowledge and manpower to get the best deals.
“MNCs have easier access to
capital markets than SMEs and will have dedicated and sophisticated trade
finance teams … an SME may only have a Head of Finance,” says Shah.
This means that smaller
corporates “may not even be aware that there is a trade finance instrument
available that could serve them,” and have no way to bridge the gap because
they are limited by the types of financial institutions they work with.
For all these reasons, it is
becoming essential that the trade finance process moves with the times and
becomes more streamlined. This will not only help systems move more quickly,
but can also improve access to smaller corporates via banks, giving them
greater opportunity to grow their businesses.
Digitalising trade finance is the solution
To open the door
and democratise trade financing requires digitalisation, which will help create
connectivity and communication between banks and corporates of all sizes to
access the services they need. The first step in this process is to provide an
easily accessible portals for all parties, which automatically helps move
things away from a paper-based system.
This will allow converting documents
to a digital record and building trust in transaction management that this is a
safe and viable solution.
This will not only help to
keep documents secure and organised, while offering the same security as a
paper-based system but can also help businesses meet their ESG goals by
reducing waste. It will also give treasuries the push they need to adopt
electronic documentation, which to this point has not been a major concern and
has led to low innovation.
Not only this, Kyzer
Software’s TradeKonnect, provides access to huge amounts of data and are a
great way to help corporates, especially SMEs, to evaluate their options for
financing.
But as banks across the
world are demanded by their corporate customers to deliver a more efficient
service, more and more are now opening up to process automation, which is in
turn leading corporates to realise the benefits of a collaborative trade
finance platform.
“This is precisely the
concept that Kyzer Software is striving for with our TradeKonnect and TradeZone
platforms,” says Shah, “to provide technical access that is as open as we
possibly can be to streamline the process for companies of every
size.”