In 2022, the trade finance digitisation space saw a wave of consolidation, with many high-profile platforms shutting down or struggling to survive while others were absorbed by larger players. As we move into 2023, it will be crucial for solution providers to adapt and collaborate in order to seize the opportunities presented by digitisation for game-changing value creation.
Learning from 2022
Progress is often made through challenges and setbacks, and 2022 was no different. As we look ahead to 2023, it is now more vital than ever to focus on value-creating use cases that have the potential to drive tangible progress.
This means developing tools that address the current reality of all participants in global trade, rather than those designed for the utopian, fully digitally ready future that remains some ways off.
That isn’t to say it isn’t important to look ahead and consider the potential of new technologies and approaches, but meeting the market where it is, and creating solutions that are grounded in the present can help drive the progress that the ecosystem needs today.
Enno-Burghard Weitzel, senior vice-president of strategy, digitisation and business development at Surecomp says, “As we’ve seen in the last 12 months, the big bang approach doesn’t work
Incremental steps forward through the building of minimum viable products (MVPs) that address specific pain points in the industry – and that can be adopted today – are the only way to achieve scale.”
One perennial pain point in trade is the fact that many documents, such as bills of lading, are still paper-based, making it difficult for banks to trust the data they receive, as well as causing operational inefficiencies in the system.
While work is underway through legal reform to catalyse the use of electronic versions of these vital pieces of paper, adoption levels remain low.
“The MVP in this use case can be found in connecting the data from carriers directly to the banks through an open platform, thereby ensuring accuracy and generating trust. This type of value creation will be the cornerstone of progress in 2023 and beyond,” says Weitzel, adding that the same process can be used to validate environmental, social and governance (ESG) information, or perform sanctions compliance checks.
“This might look like connecting to the exporter’s Enterprise Resource Planning (ERP) systems to push invoice information through the chain,” says Weitzel. “What’s important to remember here though is the need for a hybrid approach, so that if a stakeholder in a certain jurisdiction needs to hit the print button at some point during the process, they can.”
Solutions through interoperability
Making this happen means moving beyond closed-loop systems that only work if everyone is on the same platform. It is imperative to develop solutions that are open, flexible, and able to work with a variety of systems and technologies.
Surecomp’s RIVO platform, a digital hub that provides open Application Programming Interface (API) access to importers, exporters, banks, insurers, shipping companies, and solution providers is one example of this concept in action.
RIVO provides centralised connectivity to the entire fintech ecosystem in a collaborative way, focusing on creating utility and value for all parties involved to provide a more digitally enabled future that benefits everyone.
In order for the industry to drive meaningful progress through collaboration, there needs to be a wholesale shift away from a competitive mindset, to a more collective strategy.
This means thinking creatively about overcoming structural or logistical barriers that make it difficult for solution providers to work together, such as differences in technology or processes. It also means companies will need to negotiate to align their incentives and goals in order to achieve mutual benefit.
Enno-Burghard Weitzel says, “This isn’t a new concept: transaction banks have long co-operated to facilitate trade finance transactions while also competing for corporate business.
It’s time fintechs learned from this approach. Competition can drive innovation and progress, but no one fintech can win the world alone.”
According to estimates, there are approximately 25 million businesses in the European Union. While a significant portion of these are micro-SMEs, over 1 million of them have more than 20 full-time employees, making them a viable target for trade digitalisation platforms.
Considering that the EU represents approximately 12% of global GDP, it is reasonable to assume that approximately 8 million companies worldwide need to implement digital solutions in order to achieve critical mass – a huge addressable market for fintechs everywhere.
“Realistically speaking, as solution providers, we are not competing against each other; we’re competing against paper, email and Microsoft Excel,” says Weitzel.
“Corporates are not interested in what the underlying technology is. They care about whether they can easily access different systems or whether they are being forced to manually log into guest portals with limited functionality.
There’s no pay-off for them to integrate several different digital trade platforms into their ERP systems, so they remain stuck in the status quo.”
Meeting the expectations of digital-first customers is also a significant challenge for banks. But there is no single widely accepted proposition that has gained enough traction to become the next generation platform that all corporates need to join – nor is there likely to be.
Additionally, there are no established standards in the trade finance industry from international bodies, and there is not yet an API standard for trade finance.
This is why fintechs, as partners to the industry, need to come up with workable solutions at scale – together.
As we reflect on the challenges and opportunities of 2022 and look ahead to 2023, there’s real scope for optimism. The potential benefits of making trade faster and easier for everyone are real, especially at a time of macroeconomic upheaval.
By working collaboratively to overcome challenges and seize opportunities, fintechs now have a very real opportunity to deliver on the promise of digitisation and create a more efficient, effective, and transparent system for trade.