Five reasons why banks must hone their digital edge & transform trade finance processes

Sep 14, 2023

The complexities of trade finance compliances and regulations confounds clients: Trade finance clients single out the complexity of trade finance and the resulting manual work as their greatest pain point.

Borrowers are ready to explore new finance partners & products:Some 67% are planning to change their roster of partners in the next 12 months; 76% say they will change the number of partners they will work with. Nine out of 10 businesses are willing to receive new trade finance products and services at this time.

Fintechs are ready to supplement or displace banks where they are not meeting client needs: Companies are looking to fintechs to help them reduce their credit risk, forecast cash flow, allocate working capital, and explore a broader customer and supply base.

Banks need to adapt to a changing technology and client expectations landscape: Borrowers are investing in emerging technologies such as application programming interfaces (APIs) and artificial intelligence.

There is a gap between trade finance products from banks and what clients want: There is an underserved and growing need for products such as higher pre-shipment finance and purchase order financing, particularly among small-to-medium companies.

To make a strong case for trade finance process modernisation, here are the top five reasons why banks must transform their trade finance process:

1. Process efficiency and Optimisation

Trade transactions undergo various functions that are often disconnected as banks have disparate systems performing similar operations, leading to duplication of work.

Trade transaction origination is the least automated function and might eat up to 60% of the entire transaction processing time. Also, these operations are still stifled by traditional, paper-based processes and manual processing. Clearly, improvements and optimization of these processes have become the need of the hour.

By transforming the trade finance processes, banks can ingest various documents, perform automated extraction, and process data in real-time. They can integrate incoming channels for omnichannel origination through a web portal, mobile, SWIFT, email, and branch. Leveraging technology capabilities for conformity to various guidelines will help banks eradicate manual touchpoints from trade processes and accelerate the complete process.

  • Digitisation & automation of processes at a much faster pace not only to gain efficiencies but more importantly for continuation of their business.

  • To upgrade the knowledge on changes in Trade Finance Product & Compliance through enhancing of the bank’s training programs as well as their systems & technology.

2. Controlled financial fraud

Paper-based models heighten fraud risks - 27% of corporates state being impacted by fraud over the past 2 years. The high levels of manual red tape also creates inefficiencies and higher costs for banks, their clients and all other players across the ecosystem.

Digitization of trade finance processes can address the issue of money laundering and help SMEs seize exciting international business opportunities and boost their revenues. Trade-based money laundering strategies have grown more appealing as global trade has expanded. The number of susceptible businesses has significantly increased over the years.

Illegal transactions are more likely to go unnoticed due to the ideal storm of growing commerce and onerous trade finance procedures. Manual compliance reviews can use up to 30 percent (30%) of a bank’s trade operation capacity; in a typical lifecycle, trade transactions go through compliance reviews two-four (2-4) times.

Small and medium-sized enterprises are rapidly digitizing their operations and using platforms and e-commerce to boost sales. Banks can understand SME consumers better and keep an eye out for suspicious activities by utilizing the massive volumes of data generated by digital customers.

3. Risk Management

Embedded finance will be key to the value propositions of the future and risk mitigation needs to support the demand for finance. Clients will be delighted with solutions that transform financing into a step in their digital workflow for procurement and invoicing with instant financing decisions. Fintechs are defining their solutions in this direction, often in cooperation with ERP software vendors.

Accounting data, cumulative transaction data across numerous specialized databases, documents, screenings and client profiling that provide corporate information, complex legal entity linkages and ownership structures are examples of customer data involved in the trade finance process.

Access to deeper data not only helps battle against financial crime but also allows for more accurate client segmentation and a better understanding of risk concentration.

By modernizing the process, banks can help SMEs through challenging economic times and safeguard them from criminal activity or violations by gradually changing their trade finance controls.

4. Effective lending decision-making

The key challenges that banks face include improving service levels, increasing the scale of operations, and ensuring regulatory compliance without additional costs.

Customers’ accounting data as well as current company information, such as business name, address, phone number, credit risk score, records on complex legal entity relationships, and ownership structures, can all be made available by leveraging an ideal trade finance solution. Additionally, banks can make quicker and more informed lending decisions while leveraging in-built analysis and monitoring capabilities.

5. Superior customer experience

Today’s technology-driven customers expect banks to provide solutions that allow them to seamlessly connect with the bank to complete their international trade transactions through web portals and handheld devices. While banks leverage their core banking system to maintain customer accounts, limits, and loan transactions, the overall trade processes remain manual, fragmented, and paper-driven.

By digitizing these processes, banks can orchestrate the end-to-end customer journey while offering them anytime-anywhere services and information.

  • Enable multichannel initiation and allow real-time updates, advices and SWIFT notifications via a customer portal. With automated processing, deeper specialist involvement, and tracking, banks can enable a holistic customer journey.
  • Build fintech partnerships target additional trade and non trade clients looking for innovative solutions.
  • Adopt alternative payment channels; with clients showcasing high interest in bank readiness to enable emerging tech such as APIs, the metaverse/Web3, optical character recognition and natural language processing

If banks do not modernise the trade finance process, they risk losing market share to up-and-coming financial service providers who can provide a better experience. According to an EY poll, 55% of SMEs believe banks take too long to assess their credit risk, and 36% are considering switching financial institutions.

    There is an urgent need for banks to invest in the right solutions that can transform the end-to-end trade finance process. Furthermore, the digital transformation partner must ensure that trade transaction origination, transaction processing, and document management systems are all available on a single platform.

    Delivering World Class Banking solutions for the financial sector. Powering Growth & Transformation in Trade Finance, Remittances, Compliance and Regulatory Management.

    Kyzer Software, an established fintech leader working with leading Indian and Multinational banks, providing the critical tech infrastructure that powers Trade Finance, Corporate Portal, Foreign Exchange, Regulatory Reporting, Compliance, Audit and Corporate Experience to enable better financial lives.

    We deliver technology-driven solutions that drive digital transformation for banks, their customers and help them get ahead of today’s challenges to capitalize on what’s next.

    Lets transform your banking automation journey together