A new report has found that trade and supply chain finance are “at a turning point”, with emerging technologies and massive increases in data flows set to revolutionise the traditionally paper-based industries.
The authors of the report foresee rapid growth in innovation in trade finance, that will set in motion the evolution of new “building blocks” and flourishing ecosystems.
The report, entitled ‘Relevant Advanced Technologies for Trade and Supply Chain Finance’, was published today by Germany’s Commerzbank and the Fraunhofer Institute for Material Flow and Logistics (IML).
Combining the expertise of application-oriented scientists from Fraunhofer IML with trade finance specialists at Commerzbank, the report showcases the bank’s commitment to shape the trade finance business of the future.
Among its findings, the report shows that digital advancements are pushing the development of improved business models, to meet the need for increased operational efficiency and alignment with more complex sustainability goals.
Through their research, Commerzbank and Fraunhofer IML identified three key innovations that will form the building blocks of new trade finance ecosystems:
- Big Data and artificial intelligence (AI)
- Blockchain, distributed ledger technology (DLT), and smart contracts
- Internet of Things (IoT) and sensorics
Big data and artificial intelligence (AI)
As one of the world’s most data-intensive industries, trade and supply chain finance is transforming at a rapid pace, with the ability to share and process vast volumes of complex information.
The report found that, although Big Data has been highlighted as an “indispensable” source of technological innovation, it can only be effective if implemented in tandem with other technologies.
“Big data analytics can help financial institutions to leverage the wealth of trade data stored in multiple databases across different geographies along the supply chain, and by identifying data trends and flagging anomalies, banks can detect fraud at an early stage,” the authors write.
With global data set to grow by 500% between 2018 and 2025, the report explains that effectively processing this mass of information will be a main challenge for banks and trade participants.
However, this will also enable AI and machine learning solutions to automate decision-making processes and forecast trends in risk management, financial analytics, and portfolio management.
Blockchain, distributed ledger technology (DLT), and smart contracts
Another focus of the report is the growing opportunities for businesses in the form of B2B platforms, which can reduce boundaries, improve transparency, and support automation.
The authors predict that these platforms will profoundly alter the way in which international trade is undertaken.
One such example is the blockchain-enabled, distributed trade network Marco Polo.
Developed by an international consortium including Commerzbank, the solution significantly increases speed and transparency of trade by automatically matching digital trade data.
The barriers removed could lead to more than $1 trillion in new trade over the next decade.
Internet of Things (IoT) and sensorics
By 2030, the number of internet-connected objects will reach more than 125 billion, according to a preliminary forecast by the American Bankers Association (ABA).
The networking of each object opens new revenue opportunities in novel demands on payment and finance flows.
One application scenario in supply chain finance arises through the creation of automated payment solutions triggered by sensor data.
By linking the physical and financial supply chain using IoT, the report notes, it will be possible to design fully automated order processing along the entire supply chain.
Nikolaus Giesbert, divisional board member at Commerzbank, said: “Supporting Germany’s trade corridors is in Commerzbank’s DNA, and we finance around 30% of Germany’s foreign trade.
“That is why it is vital we have our finger on the pulse of the latest technological advances in trade finance and deliver enhanced solutions to our clients.”
Prof Dr Michael Henke from Fraunhofer IML in Dortmund added: “The trick to reach the plateau of productivity quickly is to combine all the technologies we have in our hands today.
“That’s what we are doing in our collaboration with Commerzbank: we’re consistently integrating the financial flow with the material and information flow.”
The report brings together a comprehensive body of research on technology and the trade and supply chain finance industries, and is the culmination of a long-standing partnership between Commerzbank and Fraunhofer IML.