Amid a global market with a massive lack of trade finance accessibility, the International Chamber of Commerce (ICC) recently found that banks are growing more bullish on an array products to bolster business — especially small business (SMB) — cross-border trade. In the ICC’s Global Survey 2018 report, researchers found supply chain finance at the top of banks’ priorities, with 42 percent of respondents prioritizing growth in supply chain finance in the year ahead.
However, there is a shift emerging in the trade finance landscape. Whereas traditional trade finance and supply chain finance solutions remain banks’ top priorities in the coming year, those tools will become less of a focus for financial institutions (FIs), giving way to other strategies to promote international trade.
In the next three to five years, the ICC’s survey found, traditional trade and supply chain financing will only be a priority for 23 percent of survey respondents. Instead, focusing on adjusting geographic coverage of trade finance operations, and introducing new technologies like digital ledgers for trading customers, will become the priority.
A new report from the Trade Advisory Network warned that it’s not just traditional FIs that could pull back from the trade finance space.
Digital giants like Amazon are showing greater interest in the market, the report noted. With access to troves of valuable customer data, and a deepening presence in B2B supply chains, technology conglomerates are in a powerful position to introduce financing services into their own platforms. Their ability to enable trade financing on a streamlined, digital platform also presents an opportunity to compete with traditional banks that have historically been slow to digitize their financing offerings.
Yet, according to Trade Advisory Network, this recent interest in the trade finance space may not last, particularly in the case of an economic downturn. Managing Director Lionel Taylor noted that the success of these digital giants’ trade finance initiatives depends on adoption by the corporate buyers and sellers on their online marketplaces, as well as on the revenues such services can produce for the tech giants.
“It is the latter that may result in some waning of their early enthusiasm, especially if economic conditions result in a more restrictive credit approach that may interfere with their primary marketplace activities,” he said, reports in IBS Intelligence noted.
Banks are not overly concerned with tech giants’ trade finance ambitions, either, with analysts noting that traditional FIs are confident these efforts will not weather an economic downturn.
“They believe that, as soon as an economic downturn or recession hits, many of these marketplace providers will retreat back to their core activities,” continued Taylor. “In this, they may have a point, as the banks have seen other disruptors — such as logistics providers, for example — dip in and then out of supply chain finance when economic conditions toughen.”
The Organization for Economic Cooperation and Development (OECD) recently warned that large economies around the globe, including in the U.S., are likely to face a slowdown in 2019, citing a significant decline in industrial production and exports in major economies.
Still, it’s not a stretch to consider which potential technology and eCommerce giants might have to disrupt the trade finance space. Last year, Amazon announced that its B2B eCommerce platform is growing faster than its consumer retail one, with Amazon Business reaching $1 billion in sales within a year of its operations.
Simultaneously, Amazon has been expanding its small business (SMB) lending operations, with continued interest in geographic expansion positioning the conglomerate as another option for trade financing in more regions. With small businesses often seeking access to finance on the same portals through which they trade, Amazon has a leg up on the traditional banks in terms of ease of use.