Developments to Shape Trade Finance in 2023

World Trade Organization forecasts that trade growth will slow sharply in 2023 but remain positive.

FREMONT, CA: Recent years have been characterized by uncertainty, ranging from pandemic effects on supply chains to geopolitics. Continuing uncertainty is expected to dampen global trade growth

in the new year.

WTO expects trade growth to slow sharply in 2023, but it remains positive. Trade, in addition to the numbers, can potentially reduce poverty and inequality worldwide.

The role of trade finance is to facilitate global trade by ensuring importers obtain their goods and exporters receive their payments. However, the fundamental ecosystem—exporters, importers, and banks—is complicated due to the involvement of several parties in a single transaction.

There are factors at play that will influence the future of trade finance as a CEO of a global trade finance network. Together, they can contribute to the industry's resilience by providing confidence and substantial growth to global trade financing.

There are still enormous chances to digitally transform trade finance

The trade finance business relies significantly on paper and manual processes to manage ecosystem liquidity flows and risks. Despite the increased use of blockchain technology by banks and corporations for trade finance procedures in recent years, there is still room for expansion.

Digitalization of paperwork and bills of lading (BL) is one area to consider. In McKinsey's analysis, an electronic bill of lading (eBL) would reduce direct expenses by $6.5 billion and increase global trade by $40 billion.

Currently, a tiny fraction of BLs is digital, which promises a tremendous upside prospect. However, the recent closure of TradeLens, an eBL platform created by Maersk and IBM, underlines the difficulties of industry engagement with large firms. The eBL will likely be accepted by the industry in the future, as digital innovation must be accepted for the industry to advance.

As with any digital revolution, there is a reluctance to adopt until standards are established. Playing the waiting game, however, will only slow down the industry. Everyone must be able to adapt and be receptive to standards as they become increasingly formalized.

Digital transformation has been the dominant theme in the last few years which will remain so for the foreseeable future.

Integration between financial institutions and fintech will be essential for future expansion.

As the trade finance industry advances its digitization initiatives, coordination between banks and fintech will be essential to shaping the future.

Many banking partners have stated that they are just beginning their digital journey regarding trade financing. The majority also lacks the financial or time resources necessary to experiment with innovations that could lead to additional industry efficiencies. This is especially true when, during difficult economic times, a company's whole workforce is focused on its core operations.

This is where fintech can assist round out the picture, as they are integral to the digitization path of a bank and can connect the traditional architecture to external data flows. Many financial institutions have developed designs that enable them to be linked with fintech in various domains, aiming to optimize operations and generate efficiencies that ultimately generate value for their clients.