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Challenges with Traditional Trade Finance

Updated: Mar 17, 2020

Here is everything you need to know about the obstacles faced by finance incumbents.

Trade finance is a centuries old industry that remains true to its traditional business model. Whilst it may be traditional, the industry is on the cusp on a shifting trade ecosystem. Stuck in one’s ways, trade finance has remained loyal to its longtime standard of operations despite the introduction of digital disruption. Whether or not the business of trade chooses to address the shifting landscape, the industry is faced with growing amounts of threats the more it delays adapting to new operational norms.

The industry’s legacy has given trade finance reason not to abandon the model that has historically delivered success; however, other industries continue to innovate and disrupt old ways of doing business. Because of this, trade finance is presented with several challenges preventing the industry from remaining competitive and relevant.

The traditional approach for trade finance is full of pain points. Given that the industry is still heavily reliant on paper, the timeline for a transaction is a notoriously prolonged process involving a paper trail between all parties and necessary exchange validations. Additionally, trade between international buyers and sellers allows room for disconnect and miscommunication due to the use of different systematic databases and platforms. The inefficiency of operations place hard limits on traditional trade finance capabilities and prevent opportunity for solutions. The model enables financial restrictions due to lack of transparency and acceleration and therefore, poor client experiences.

The process is extremely inconvenient for all parties and costly on behalf of time and investment. The model involves an immense amount of human effort which is a foreign concept in today’s digital society, adapted to and expecting of acceleration and convenience in all user experiences and interactions. The absence of such fulfillments is a major threat to the industry, miscommunication in trade finance has the potential to disrupt and damage an entire sales cycle.

The paper based business has the opportunity to alleviate the tedious processes by implementing efficient technological solutions in order to rid of inconvenience. This opportunity alone holds the power to transform the way in which the fundamentals of trade finance were structured by completely streamlining the business model.

In an industry that rests on its laurels and prefers to stick with what works, the use of technology is a quick fix to overcome technological disadvantages and operational challenges. The digital transformation of trade finance is facilitated to provide a better experience for all stakeholders. By applying technology to create seamless communication and expedite procedures, all operations are simplified and the industry is assuaged from fear of displacement.

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