RESEARCH REPORT
Find your competitive advantage in trade finance
5-minute read
In brief
- Many banks are struggling to meet trade finance clients’ changing requirements in a time of higher inflation and rising interest rates.
- Borrowers are ready to explore new partners and products due to a gap between trade finance products banks offer and what clients want.
- Fintechs are ready to supplement or displace banks where they are not meeting client needs.
- To grow market share and become more competitive, banks will need to sharpen their digital edge.
Challenges and opportunities
Open account trade is responsible for around 80% of all international trade transactions with banks playing a minimal role beyond clearing payments.1 This means that there is still plenty of opportunity for banks to grow their trade finance businesses, provided they upgrade their digital strategies and get to market with the products clients are seeking.
New research from Accenture reveals that many banks are struggling to meet clients’ changing requirements due to a mismatch between their trade finance offerings and client needs. Our survey of 675 finance executives in 15 countries also shows that corporate clients are actively reviewing their roster and number of trade finance partners.
This comes at a time when competition from fintechs and non-traditional players is heating up. While banks are currently thriving in trade finance thanks to rising interest rates, there is real danger of losing market share to innovative new entrants and leaving attractive growth opportunities on the table.
Demand for trade finance is booming and rising interest rates are fueling profitability.
Companies are shaking up their trade finance partners
The majority of survey respondents are looking to change which and how many trade finance partners they work with, perhaps to address gaps in banks’ product portfolios.
67%
are planning to change their roster of partners in the next 12 months
76%
will change the number of partners on their current roster
62%
already have five or more trade partners
There’s a gap between trade finance offerings and client needs
Companies in our survey reported that inventory financing is the product that matters most to them at this time. They agreed that they have a rising requirement for higher pre-shipment finance, a product that is not available from most traditional banks. The research also highlights a growing need for purchase order financing for small to medium buyers and payable finance for multinational corporations.
Companies said they are seeking efficiency and faster turnaround times, more competitive pricing, easier access to credit facilities, and better access to international markets from their providers.
91%
of businesses are willing to receive new trade finance products and services at this time
Navigating the new trade finance landscape
Only 16% of companies—most of them larger corporates—report that they are fully digital. Most respondents agreed that manual work, resulting from the complexity of trade finances, is an additional pain point.
Fintechs are positioning themselves to address the gaps currently not met by banks by offering clients flexible access to liquidity and technology-driven due diligence as well as digital processes that enable them to trade internationally. To keep up, we believe there are three key actions banks should consider:
- Invest in digitization and automation: Help corporate customers address their manual, error-prone pain points with digitization and automation.
- Forge technology partnerships: Leverage strategic partnerships with bigtechs, fintechs, ERP software vendors and other platforms to create interconnected solutions.
- Offer sustainable products and ESG advice: These can help clients navigate the challenges of reducing emissions and reporting on ESG emissions.
New revenue opportunities and expanded market share await the banks and fintechs that navigate this landscape with the necessary controls, insights. solutions, partnerships and business models. Let’s talk about how we can help you steer through the opportunities of a fast-changing trade finance landscape. Reach out to any of our authors to discuss.
Frequently asked questions
There are many, with the difficulty of accessing foreign markets and securing new customers and finance being predictably among the top five. But at the top of the list is the complexity of trade finance transactions and all the manual paperwork it entails. This is aggravated by regulations that differ from market to market (third on the list). A survey finding that helps explain this ranking is that only 16% of companies have fully digitized their trade finance processes. The result is not only inconvenience for all parties, but also higher costs, slower transactions and a greater risk of fraud.
Macroeconomic disruption is an academic-sounding term, but for most trade finance borrowers it has very real implications: two out three report that rising central bank rates has caused the cost of credit from their trade banks to increase in the past 12 months. One in five say the impact on their business is ‘extremely significant’. Nor has this happened in isolation—the supply-chain upheavals and energy cost rises affecting importers and exporters are well documented. In this context, the need for all parties to maximize the efficiency of their trade finance operations cannot be overstated.
This is easier said than done, as competition from fintechs—with their fully digitized transactions and tech-driven due diligence—has more than quadrupled since 2015. Traditional banks have a number of advantages over these newcomers, including their long-standing, trusted customer relationships. But we believe three actions are critical for banks to defend and grow their market share in this sector: increase investment in digitization and automation, forge technology partnerships to leverage the Open Finance opportunity and adopt sustainable-finance processes, solutions and advice to help customers address the challenge of transitioning to greener operations.