The trade finance ecosystem is undergoing significant changes with emerging trends transforming how businesses operate.

Remaining abreast of these changes and being willing to adapt to the changing pressures is becoming more critical than ever.

To learn more about some of the emerging trends in the trade finance ecosystem, Trade Finance Global (TFG) spoke with Elena Sankova, global solution consultant and head of European pre-sales for working capital and cash management at Finastra.

Emerging trends in the trade finance ecosystem

Several trends are entering the trade finance ecosystem, including increased compliance, digitalisation, and emphasis on environmental, social, and governance (ESG) matters. 

Compliance is becoming a more critical aspect of the trade finance process. Given the growing number of regulations and the need for more sophisticated risk management, it will likely remain a top priority for businesses in the trade finance space.

This includes regulatory checks, compliance checks, and risk mitigations, which are all critical in ensuring that trade transactions are conducted safely and transparently. 

Another trend gaining momentum since the pandemic is the adoption of digital technologies. 

This includes technologies such as optical character recognition (OCR) and document checking, which can streamline the trade finance transaction process by reducing the need for manual processing and increasing accuracy.

Sankova said, “If I look back to five years ago, we had only one partner working on digitising paper documents. These days we are talking to six or seven partners.”

This growing number of service providers is a testament to the importance of digitisation in trade finance as these technologies save time and resources and help to mitigate risks associated with errors in data entry or document processing.

Finally, there is a growing interest and investment in ESG initiatives in the trade finance ecosystem, from assessing the impact of a trade deal on the environment or ensuring that workers’ rights are respected. 

Sankova said, “While ESG has been in the air for many years, we only now have some concrete scenarios in place that we can bring into our systems and provide solutions to the market.”

As this technology continues to improve and move beyond the proof of concept stage, it will likely attract further interest and investment in this area.

Overall, the trade finance ecosystem is becoming more complex and diverse, with a growing number of players and areas of focus. Compliance, digitisation, and ESG are just a few of the trends that will likely shape the industry’s future in the coming years.

A shifting landscape necessitates collaboration

The trade finance ecosystem is complex, involving various components such as payment systems, invoices, foreign exchange, compliance, and regulatory checks. 

Recent changes in the ecosystem, including the collapse of major companies such as we.trade, Marco Polo, TradeLens, and SVB indicate the need for collaboration and agility throughout. 

Rather than being a single string chain, the ecosystem is multidimensional and requires collaboration among various parties involved in the process to operate effectively. 

Although a company like Finastra could own the entire end-to-end ecosystem, collaboration with other fintech companies is necessary to cater to the diverse needs of corporates, which have become more prominent players. 

Stankova said, “Large corporates don’t want to be tied down to a single technology provider; instead, they want the flexibility to change providers quickly if the need arises. To reflect this, the ecosystem has to be agile, and it has to be dynamic.”

This is about building interoperable infrastructure and finding new partnerships and ways of building relationships to ensure the ecosystem can operate effectively. 

Collaboration is crucial for the trade finance ecosystem to adapt, expand, and regulate itself in the future.

Future developments

Stankova said, “Where the industry is headed, I think we will see new segments and definitely new syntax will come into the market. We will also see growth in the number of players available and the level of collaboration.”

This growth may challenge existing relationships but will also provide opportunities for service providers to increase the services they offer and strengthen their partnerships with existing counterparts.

As the industry becomes more democratised, digitalisation and innovation are increasingly accessible to smaller companies, not just large fintechs and banks. These smaller companies have their own needs and challenges, opening new opportunities for providers to serve these needs. 

To ensure the sustainability and resilience of the ecosystem, it is vital to open it up to all players and minimise dependence on specific components, making it vendor agnostic. 

The trade finance industry is expected to continue evolving and expanding, focusing on collaboration, accessibility, and sustainability.