Trade finance evolution: Banking’s agility test
September 22, 2020
In brief
In brief
- The rise of new competition—competitors from the technology, fintech and logistics industries pose a threat to existing trade finance banks.
- SMEs are the new corporate customer—small and medium enterprises are a rapidly growing segment of the changing trade finance market.
- Agile business models—the need for agility demands operational transformation by integrating siloed processes and using new technologies.
- New market opportunities—there’s an estimated $1.5 trillion global trade finance gap up for grabs by agile trade-finance providers.
The rise of new competition
The threat posed by technology giants, fintechs and even logistics providers is considerable. Their growing presence in the trade, supply chain and working capital finance space is increasingly apparent as they overcome traditional barriers to entry. Their strong capabilities in data processing and technology enable them to offer a range of competitive financial products, predominantly in previously underserved market segments.
SMEs are the new corporate customer
Among the most underserved customers in trade finance are small and medium enterprises (SMEs). However, according to the World Bank, SMEs make up about 90 percent of global businesses and more than 50 percent of employment worldwide. The demand for SME funding has increased significantly in recent years. In the UK, for example, a £22Bn SME funding gap has emerged due to a surge in demand and limited supply1. In the current and post-COVID-19 climate, this demand will escalate because the underserved SME market is likely to grow. One out of four SMEs report that they have cash reserves to last only one month without additional financing.
The trade finance landscape shift
New players are winning business in underserved areas of trade finance, especially among SMEs, due to raised trade finance rejection rates.
New entrants threaten incumbents
New entrants ease user pain and provide easier access to cheaper financing options which ultimately threaten incumbents’ larger corporate client base.
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Agile business models
New competitors and the changing nature of corporate customers will require operational reinvention by finance providers, which are redefining their operations by integrating siloed processes and using new technologies. Important areas of operational change include multibank platforms, borrowers and banks coming closer together, end-to-end trade finance solutions and maturing trade consortia in the ecosystem.
New market opportunities
It’s vital to outline what these opportunities are and then evaluate how financial institutions can leverage new technologies to access them. We’ve established how finance providers are rapidly adopting new ways of operating to develop more bespoke client services. The rise of multibank platforms and digital origination channels has opened up a multitude of new opportunities in trade finance.
Accenture can help incumbents navigate the trade finance evolution and capitalize on the significant opportunities it will bring.
Players that are agile enough to evolve their operating model will be able to realize new market opportunities.
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