Uncertainty has characterized the previous few years, from geopolitics to the pandemic’s effects on supply chains. This uncertainty still exists as we enter a new year and is anticipated to have an adverse impact on the expansion of global commerce. The World Trade Organization anticipates that although trade growth will slow down sharply in 2023, however, it will still remain positive. Beyond the figures, trade sustains economies across the world and has the power to reduce inequality and poverty. This is where trade finance comes in—facilitating accessibility across global trade by ensuring that importers receive their goods and exporters receive their payments.
Supply Chain Finance Market was valued at USD 35.3 Billion in 2021 and is expected to reach USD 98.5 Billion by 2029, exhibiting a CAGR of 13.69 % during 2022-2029. The world of supply chain trade finance is ever-evolving, and 2023 is poised to bring some exciting new trends to the forefront. With the ever-growing complexity of international trade, banks and corporations are looking for ways to optimize their cash flow and risk management while ensuring sustainable growth.
The trends to lookout for in 2023 will be,
Digital Transformation: As digital technology continues to advance, the use of digital tools in the supply chain finance process will only increase. This means a greater focus on automation, machine learning, and blockchain technology to streamline processes and reduce the risk of fraud and errors. Artificial intelligence and machine learning are being used to automate routine tasks, such as data entry and analysis, reducing the risk of errors and freeing up time for more strategic work. One of the critical areas is digitizing documentation and the bill of lading (BL). According to McKinsey, an electronic bill of lading (eBL) would save $6.5 billion in direct costs and enable $40 billion in global trade. Additionally, they are being used to monitor and analyze supply chain data in real time, providing organizations with valuable insights that can be used to make informed decisions.
Increased Focus on Data and Analytics: Supply chain finance requires a wealth of data to be analyzed in real-time in order to make informed decisions. As the amount of data available grows, companies will need to focus on utilizing it effectively to make better decisions and minimize risk. Advanced analytics tools will play a vital role in this trend.
Sustainability: Environmental, social, and governance (ESG) considerations are becoming more critical in all areas of business, and supply chain finance is no exception. Companies are looking for ways to finance their supply chains more sustainably, including investing in renewable energy and sustainable practices.
Rise of Alternative Financing Options: The traditional banking system has long dominated supply chain financing, but alternative options such as peer-to-peer lending, crowdfunding, and blockchain-based financing are rapidly gaining popularity. This shift towards alternative financing options offers a more flexible and cost-effective way for companies to access financing while providing more significant opportunities for SMEs to participate in the supply chain finance process.
Emphasis on Cybersecurity: With the increasing use of digital technologies in supply chain finance, it is becoming more important to focus on cybersecurity. This includes protecting sensitive data and ensuring that financial transactions are secure. Companies are investing in advanced security measures, such as two-factor authentication and encryption, to protect themselves and their customers from cyber threats.
Integration between financial institutions and fintech: Collaboration between banks and fintech will be essential to reshaping the future as the trade finance sector advances its digitalization ambitions. Regarding trade financing, several banking partners have said they are only beginning their digital journey. The majority also need more time or financial resources to experiment with innovations that may increase industry productivity. This is especially true when everyone is focused on their typical enterprises because of a concentration on core business during a challenging economic period. This is where fintech is critical in a bank’s digitization journey and can connect the traditional architecture to external data flows. To streamline operations and drive efficiencies that will eventually provide value for their clients, several financial institutions have developed architectures that enable them to be linked with fintech across various domains. This trend will gain tremendous momentum as the industry prepares for a resilient future.
Companies that stay ahead of the curve and invest in the right technologies and practices will not only improve their competitiveness but also help drive the entire industry forward. The ability to manage what is ahead in 2023 will depend heavily on these supply chain trade finance trends. As we’ve seen, having advanced planning skills and agility, made possible by increased end-to-end visibility, will be essential for minimizing risks and areas of vulnerability and seizing opportunities that would otherwise be challenging. Businesses can position themselves for success by being proactive and anticipating these developments to be future ready.
(The author is Ms. Swati Babel, A Cross Border Trade Finance Business Specialist, and the views expressed in this article are her own)
