Rajashekara Visweswara Maiya – VP, Global Head-Business Consulting-Finacle at Infosys
For many supply chain businesses, it takes a long time to gain access to finance. Something that is now thankfully starting to change.
The digital wave is gradually sweeping across the industry, transforming supply chain finance (or trade finance) today. Rapid advancements in technology like real-time payments, blockchain, and optical character recognition (OCR) have automated and dramatically accelerated the procedural time involved in trade finance to bring cost efficiency, agility, and transparency to the business.
But there is room for improvement.
The need to transform: Customers compare, and companies fall short
Despite making strides, trade finance delivery falls short of customers’ expectations, who now demand the same levels of service, speed, and accessibility that they get from e-commerce or even retail banks. While companies like Tesla allow customers to design and order their cars from a mobile app, trade finance transactions, save some automation, have barely changed from their outdated, mostly paper, systems.
For corporate and business banking customers, the lack of real-time visibility into cash and liquidity positions across banks, time zones, countries, and currencies remain a significant pain point. This issue prevents them from optimising their working capital and makes it harder for corporate treasurers to forecast and manage various risks inherent in global trade. The problem is all the more frustrating as the vast majority of logistics companies are synonymous with providing real-time visibility and the tracking of their primary transport operations.
Driving change: A customer-centric view
One could argue that persisting geopolitical and macroeconomic uncertainties have forced corporate banks to postpone big decisions such as the need to transform their legacy trade finance systems. But trade finance players must reimagine their systems to be ahead of their competition that are fast closing in by solving customers’ problems.
Nevertheless, there are ways to modernise trade finance and reimagining trade finance operations with business model innovation is key. Here are some of the various ways for commercial banks to do this:
Digital commercial bank: Like their retail counterparts, corporate banks should think AI-first, cloud-first, and mobile-first in everything they do and digitise customer acquisition, customer touchpoints, and customer servicing. To aid this journey, there are many technological options to choose from and blockchain is one such option. In markets such as India, blockchain has been deployed to automate inter-organisational trade finance transactions by Indian Banks’ Blockchain Infrastructure Co (IBBIC), a consortium of over fourteen banks. The initiative has made trade finance transactions paperless, cashless, contactless, cheaper, faster, safer, and more transparent.
Marketplace: Another way of reimagining trade finance to fulfil customer expectations is by adopting a non-finance or finance marketplace model. A bank can build a non-finance market, an ecosystem where participants come together to automate and reimagine processes and customer journeys. Alternatively, it could create a comprehensive finance marketplace where the participants — from incumbent banks to emerging fintechs — collaboratively offer financing, sharing the risk. India’s Open Credit Enablement Network (OCEN) hopes to bridge the considerable funding gap plaguing small and medium enterprises (SMEs) by connecting businesses in need of money with other businesses — not necessarily banks — that are willing to provide it. By examining goods and services tax and other information, a lender can assess a business’s situation and based on that, extend cash-flow-based financing in a seamless, frictionless manner.
Embedded finance: Here, banks participate in a larger network — such as the Open Network for Digital Commerce (ONDC) — which is not built by them but allows them to embed their services within digital commerce journeys. Amazon and Shopify have adopted this model to ensure that transactions are funded at the source and documented entirely digitally.
Banking as a service: This is typically for smaller banks without the resources or capabilities to do the above. This option allows them to get “trade finance as a service” from a larger bank. For the latter, this is an opportunity to earn extra revenue by offering its capabilities to banks struggling with legacy trade finance operations. Among the best examples of this business model is Goldman Sachs, which has partnered with Amazon to provide financing for sellers on Amazon’s Seller Central site.
Staying ahead
Trade finance is a significant business. But even as it grows, it is still trapped in legacy systems and processes which have not changed in years. For commercial banks, the competition is heating up and there is an urgent need to transform. Banks can achieve this by innovating their business models with technology — going digital-first, building marketplaces, and embedding financial services in trade transactions.
