Entrepreneur Manish Bharucha is one of the co-founders and currently the CEO of Kyzer Software, a leading banking and financial organization, established in 2016. It creates niche products in trade finance, automation, lending, compliance, and regulatory reporting with various Indian as well as multinational banks.
Trade finance simply means to address the monetary instruments and items that are utilized by organizations to work with global exchange and trade. It’s an important part of exports and imports. In other words, it basically introduces a third party (banks) to transactions for eliminating the risks of payments and supply, in turn, making the process reliable. And when we talk about automation in this sector, it seems trade finance is facing a major overhaul as banks are gradually trying to minimize the human input and go fully digital. From USD 7,616,520 million in 2019, the global market size of trade finance will soon reach USD 10,987,510 million by 2026 at a CAGR of 5.4 per cent. However, can market growth alone promise its success? No, isn’t it? So, in order to thrive, banks must position themselves as leaders in the digitization of trade finance.
Why automation in trade finance?
Undoubtedly, the trading of goods in the global market is perplexing and loaded with uncertainties. Since exports and imports happen between entities in far-off nations, there could easily be a lack of trust amid the buyers and sellers. This is where banks come into the picture, which helps them mitigate the risk of trade finance by providing documents such as Letter of Credit (L/Cs) and Bank Guarantee.
While L/Cs reduce payment risk as a bank makes (or guarantees) the payment to an exporter on behalf of an importer once delivery of goods is confirmed through the presentation of appropriate documents; Bank Guarantee is a promise from a lending institution that ensures the bank will step up if a debtor can’t cover his debt.
Now, this whole process involves a lot of paperwork, and extensive manual interventions like document reading, data entry, and data analysis. The banks get thousands of such documents of thousands of exchanges happening daily, which becomes a tedious task.
By introducing softwares that enable banks to offer customers a web-based interface for conducting trade finance transactions online, including Letters of Credit, Bank Guarantees, documentary and clean collections, payment processing, foreign remittances, and pre- and post-shipment export financing, the business gets efficient. These tech-savvy solutions secure online requests and transmit them electronically along with documentary evidence.
The International Chamber of Commerce expects that the vulnerabilities due to the pandemic will further increase the requirements for trade finance products. It’s because organizations will, in general, consider these important, perceiving an increase in geopolitical and commercial risks.
How is it transforming the sector?
With technology as a key enabler, digital transformations are bound to become necessary to efficiently make banks conduct their businesses. Digitization helps convert day-to-day trade transaction management into the bank’s competitive advantage. Overall, the digitized solutions are a perfect fit for banks who would like to manage, monitor their trade transactions on a single dashboard, and have the solution customized and configured as per their banking process. It not only leverages the existing investments, but it also automates the functions carried out by the branch, service desk teams and improves their productivity with its value-added features.
The softwares utilize customer historical data, scrutiny and compliance observations, blacklisting, AML, and sanction screenings to prevent duplicate request processing, financing and verify the veracity of underlying trade. Deferral management ensures account level checks, transaction processing controls with an irrevocable audit trail, and documentation is transmitted digitally, mitigating the existing high cost, error-prone and inefficient processes.
Innovative solutions that can help reduce the cost of operations, improve compliance, check anti-money laundering, and adapt to disruptions like Blockchain and electronic trade documents will, certainly, win the market, in turn, transforming the sector.
What are the advantages?
Right from enhanced customer experience, improved productivity in operations, optimal costs, to reduced regulatory and compliance risks, there are numerous areas where automation provides benefits. The trade finance banking solutions can dehumanize and centralize the whole process. Many tech-enabled software offers businesses automated processing of import and export documentation, remittances, and negotiation. They help compliance as software packages include many functions that ensure all transactions comply with service-level agreements. They allow real-time document tracking and updates status, which further helps the operations. The transactions happening over long distances automatically speed up.
Improved analytics will support banks to assist customers with more timely recommendations and build more solid, long-enduring business relations. Undoubtedly, the choice seems clear. These sorts of advancements have opened significant ways to value new business opportunities.
Banks that are slow to accept these transformations will certainly struggle to keep up with the buyers and sellers. It’s simply because automation is the future. Banks will need to speed up the transformation of this space or face the danger of more inventive players utilizing this chance to enormously upset their share of the market.
Digitalization of trade finance not only assists with meeting administrative prerequisites all the more proficiently but also improves internal risk management systems. It will only fuel the growth of trade finance market size. There is an incredible opportunity for banks today to invest in the smart digital revolution. Automation helps to stay ahead of the curve!