Estimated reading time: 5 minutes
- Artificial intelligence (AI) can transform how business is conducted for enterprises of all sizes, but particularly for small- and medium-sized enterprises (SMEs).
- Concerning regulation, ESG goals are only increasing in importance, and AI can help address these pressures.
- In fact, AI can be deployed in response to demands for ESG compliance from investors themselves.
In 2024, the year of dramatic elections, tectonic shifts in governing power, and heightened tensions worldwide, Sibos attendees are keeping their eyes squarely on the road ahead. This year’s theme, Connecting the Future of Finance, has two letters hot on everyone’s lips: AI.
Alongside the conference in Beijing, Finastra’s Trade and Supply Chain Product Management Head Anastasia McAlpine joined Trade Finance Global’s (TFG) Deepesh Patel to discuss how the use of artificial intelligence will reshape trade.
AI is nothing new, and it’s already transformed the trade finance space. But who will really benefit from the next wave of AI integration? Finastra—one of the world’s largest fintech companies and an early adopter of automation—is characteristically excited about what AI can do for SMEs in supply chains.
In conversation, McAlpine explored how AI can address innovation deficits for smaller players as well as the challenges for the big banks.
Addressing the innovation deficit
Recently, Finastra’s product team began expanding their Loan IQ platform – a software solution already servicing 75% of all syndicated loans (large-scale financing provided by multiple lenders).
According to the World Trade Organisation, around half of trade finance requests from SMEs are rejected, compared to only 17% for larger players. McAlpine has a lot of sympathy for those trying to keep up with a market that is perpetually in flux. “One of the big differentiating points is the vast amount of data… the vast amount of the players… you’ve got the buyers, suppliers, and we’re talking about hundreds of thousands of invoices floating on a daily basis.”
AI will play a huge part in transforming the supply chain finance (SCF) space, with many optimistic about how automation could make the market as a whole more accessible, especially for smaller players that are struggling with the challenges of the cost and scale of supply chain finance best practice.
For the team at Finastra, collaborations with platforms like CredAble are instrumental to ethically-focused digitisation, a challenge that McAlpine is acutely aware of.
“We need to think about the cost-of-serve from the bank perspective to the SME… It’s very paper-based, very labour-intensive, and cost-ineffective. This is one of the key points and barriers that the industry needs to face.”
Through the Finastra Trade Innovation-CredAble Working Capital Finance integration, McAlpine hopes to streamline supply chain financing processes and enhance the customer experience.
AI plays a huge part in elevating this experience, with three key components:
- Improving optimisation by helping to streamline the process of onboarding new partners in the supply chain ecosystem.
- Processing and analysing data and using predictive models to assess optimal financing times (for instance, evaluating cash flow needs and supply chain dynamics).
- Tools like Copilot AI to expand the knowledge base of financial institutions with education and query resolution via real-time, global databases.
A seat at the table – ESG best practice en vogue
Bloomberg Professional Services estimates that global ESG assets will exceed $53 trillion by 2025, accounting for more than a third of the projected $140.5 trillion total assets under management. This significant proportion represents the growing importance of ESG initiatives in the financial industry – a trend which McAlpine has long observed.
For the industry at large, McAlpine is interested in how Finastra can help to address contemporary pressures of environmental, social and governance (ESG) initiatives.
“With AI, a lot can be automated. That, coupled with all the digital initiatives that are happening in the market, will help us to move forward. It will lower the cost of serving [customers], and with the likes of ESG scoring, it will hopefully de-risk the business for the banks.”
In recent years, McAlpine has watched the corporate approach to ESG turn on its head. Once a matter of mandatory compliance, leadership teams are now more engaged than ever in building robust, conscientious practices—not just for their bottom line but increasingly for the sake of the planet, society, and their partners.
“Over the last few years, there’s definitely been a shift into more of a social aspect and how we can actually improve the industry,” McAlpine was happy to say. “This social part, I think, is very prominent.” Considering the ‘S’ in ESG extends to job creation: McKinsey predicts that the green transition could result in a gain of 200 million jobs by 2050, to the significant benefit of SMEs.
While the Loan IQ platform’s standing in the complex lending market is well understood, its expansion in managing high-volume bilateral and SME loan servicing is in its advent; hopefully, Loan IQ can eventually provide a “one-stop shop” for vast amounts of supply chain data. This comprehensive risk assessment capability will enable major lenders to better serve SMEs.
Several leaders in trade and supply chain finance innovation (including Finastra) have called on financial institutions to embrace the ethos of sustainable finance, for two main reasons.
Firstly, investor demands are swinging, as new understandings of the economic benefit of sustainable growth are giving way to a more politically minded generation of shareholders. This is coupled with governing pressures. From Basel IV to the 2030 UN Agenda on Sustainable Development or the UN Principles for Responsible Investment, regulatory bodies have a palpable interest in ethical, sustainable financial frameworks.
Ethical AI and the future of sustainable finance
For more than a decade, AI has been utilised by SCF providers, largely to the advantage of the trade finance market, with innovation and optimisation reaching exciting new levels (SpringerLink). But while AI no doubt nurtures growth, ambitious ESG goals will sustain the industry above all else, thus raising questions about data inaccuracies, overreliance and a loss of human expertise (IBM).
McAlpine remains confident that the benefits vastly outweigh the risks, but she understands industry wariness. “We’re really talking about the tip of the iceberg because I think the potential of AI is huge. But we need to be comfortable with the use of AI. Today, I think, in the market, there is a fair bit of healthy scepticism… Can it be really trusted?”
For those thinking strategically about the future of trade finance, it is not a dilemma of trust but a question of risk and reward.
