China, anti-globalization and emerging markets – how fintech is facilitating trade in a tough environment

20/08/2018

how fintech is facilitating trade

how fintech is facilitating trade

The global trade landscape is evolving at a considerable pace, with new developments resulting in both challenges and opportunities for banks and businesses across the world.

A number of factors are at play that are contributing to this, but undoubtedly, a key influencer is the rapid advancement of emerging economies. This is particularly true of the Asia Pacific region, with Latin American markets also gaining prominence as global commerce has become more integrated.

China has been at the forefront of this transformation, growing at a phenomenal rate in a short period of time, and coming to dominate world trade in terms of the volume of goods shipped and delivered. What’s more, as China evolves to become a middle market economy, trade dynamics are evolving yet further as it begins to shift its focus to consumption and the production of higher value goods, such as jet engine components and LED screens. In turn, the manufacture of cheaper goods that has traditionally been associated with China is now increasingly moving towards markets including Indonesia, Bangladesh and Vietnam.

The network of new trade corridors resulting from these economic shifts means that today’s global economy is more interconnected and interdependent than ever before.

Lower trade tariff barriers and advances in transportation and communication have supported the spread of global value chains, while the fragmentation of production processes has helped to boost trade growth, as components cross borders multiple times.

Of course, the global trade community is also facing numerous challenges, including the rising trend for protectionism, which is a significant barrier to trade. The U.S.’s stance towards anti-globalisation in particular, has spurred free trade advocates across the globe to examine new deals to reinforce global commerce and safeguard exports.

It is clear that we are no longer seeing the same levels of world trade growth as in the two decades preceding the financial crisis. These levels were inevitably going to trail off due to being fuelled by “one off” factors, including the rapid growth of the Chinese economy since joining the WTO in 2001, and the reintegration of the Communist bloc into the world economy. However, crucially, global trade remains a dynamic economic force with significant inter- and intra-regional opportunities for businesses to capitalise upon.

Harnessing supply chain data

Alongside the changes to the physical supply chain, technology is also playing a crucial role in paving the trade landscape we see today. New capabilities are coming to the fore and presenting the opportunity to enhance existing processes across the trade finance spectrum.

Advancements include documentation exchange and approval, harnessing rich data sets through analytics to unlock value throughout the supply chain, and the adoption of common documentation standards to help ease the passage of goods and services across the globe.

What’s more, the technology emerging around transparency and access to information is helping banks to equip clients with tools to manage their trade flows and accounts payable and receivable far more effectively than before.

Fintech advancements streamlining global transactions

Trade finance is increasingly becoming a data-led, data management business – and data could be extremely valuable with regard to improving the ease of doing business. Creating technology platforms for use by trusted user groups could facilitate the interchange of trade data and information, providing resources that can be shared and used by different participants in the supply chain to enhance existing processes. This is certainly an area where all participants could leverage technology and stand to gain significant benefits.

Developments are underway in this respect. Singapore-based CCRManager, for example, recently announced the launch of an electronic platform for secondary market trading. The platform supports risk distribution by enabling financial institutions to trade assets more actively and with a broader range of counterparties to help optimise their balance sheets. Of similar note is TradeIX, the world’s first shared platform for trade finance, built using distributed ledger technology and driven using application programming interfaces (APIs).

Shared platforms could also play a vital role in streamlining current processes for identifying and verifying clients by removing the need for multiple banks to duplicate due diligence on the same companies.

This will reduce costs and ensure data integrity, while maintaining the probity and sanctity of the global financial ecosystem. One such example is the Global Legal Entity Identifier (LEI), developed by the International Organization for Standardization (ISO). It connects to key reference data that enables clear identification of legal entities participating in financial transactions, thereby helping to contain market abuse and financial fraud.

Such capabilities could bring considerable value to the world of trade. With tightened regulations in the wake of the financial crisis making client on-boarding costlier and more complex, many banks have been forced to de-risk. This has been a prime contributor to the trade finance gap – which currently stands at US$1.5 trillion according to the Asian Development Bank, and has a detrimental impact on emerging economies and SMEs in particular.

With the long-term global economic trend for continued globalisation, the effect of financing shortages on trade growth is a pressing issue, and ensuring smaller nations and businesses are able to access trade finance is of paramount importance. By harnessing technology, the industry could potentially look to address existing issues to further support business growth and unlock new global trade opportunities.

Banks are beginning to provide the tools cross-border businesses need

In this increasingly complex, far-reaching and digital landscape, it is important that banks are able to provide effective, robust solutions that meet evolving market and client needs. By leveraging new technology capabilities, it is possible to not only enhance the client experience through improved efficiency and transparency, but also utilise data to gain a deeper understanding of clients’ businesses.

Banks can gain insights into clients’ trading patterns and business trends throughout the supply chain, and identify opportunities to nurture and add real value to existing relationships.

Investment into technology innovation can be a challenge for many local and regional banks. However, through local-global correspondent banking partnerships, smaller banks are able to benefit from new technology capabilities without the need for considerable upfront investment.

Such non-compete relationships are powerful means for banks to share expertise and digital solutions, thereby helping to ensure clients are positioned with the tools they need to navigate effectively and grasp trade opportunities to the full. BNY Mellon is a strong advocate of the correspondent banking model, and is investing heavily in its capabilities to help support its banking partners and the global trade landscape.

Technology developments are integral to the success of trade finance, and trade finance has never been more broad reaching and data-led. As global trade continues to evolve, it is by working together that banks can deliver new data-driven solutions, optimise the supply chain, and allow clients to confidently tap into the new opportunities and new corridors on offer in this vibrant, diverse trading landscape.

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Dominic Broom

Author: Dominic Broom

Dominic Broom is Global Head of Trade Business Development for BNY Mellon Treasury Services and a member of the ICC Banking Commission's Executive Committee.

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