How fintech can reshape global trade and the supply chain
Bank of America’s Faisal Ameen, head of global transaction services for Asia Pacific and Japan, recently shared his thoughts on how adaptive technologies will change the future of global trade and supply chains.
Systemic global trade and supply chain challenges can be solved using fintech
He confirmed big banks, especially his, are focused on client needs, increasing efficiency, and reducing settlement times. In his mind, this means digitising the supply chain journey. Doing so includes pursuit of financial integration to deliver a single customer platform enabling financing, invoicing, and payments.
Yet, even more is needed to combat a still struggling post-COVID trade landscape. Emerging market volatility brought on by the Russia/Ukraine conflict and inflationary central bank policies complicate things further. The current state of global trade leaves many desperate to secure and protect supply chain continuity.
As global trade and supply chains attempt to tackle an onslaught of challenges, streamlining processes and solving systemic problems has never been more important. Fintech advancements in blockchain, payments, and finance are all poised to offer a much needed helping hand. Such technologies, combined with innovations in 5G, have the power to revolutionise the way we conduct global trade and manage our supply chains.
To many, blockchain is an enigma – simply a byproduct of the cryptocurrency revolution. However, to those in the know, blockchain offers a decentralised ledger that can securely record and verify transactions. In this way, blockchain can fuel a transparent and tamper-proof framework for tracking goods, payments, and services across the entirety of the supply chain.
Imagine a trade environment where transactions are recorded in real-time from beginning to end. From the start of manufacturing to the end of point of sale, every move would be trackable and verifiable. The openness blockchain offers could have an immediate impact on counterfeit goods, fraud, and timely access to information.
Moreover, fintech solutions like blockchain can facilitate digitisation and automation of customs and border clearance. A shift to greater transparency, security, verifiability, and paperless processing would be welcomed by all. The burdens associated with manual processing would be a thing of the past, greatly improving accuracy and throughput.
While blockchain offers substantial improvement, so do fintech payment technologies. The ability to exchange payments quickly and securely is essential to trade relations as it establishes trust between parties. Supplanting slow, expensive, and error-prone conventional methods like wire transfers with fast, efficient, and cheap real-time payments is a win-win for everyone. Today’s geopolitical environment is in constant flux meaning trust and speed are crucial to keeping the lines of communication and supply open. Fintech innovations leverage multiple technologies to make transactions faster, more secure, and less expensive.
Cross-border payments are particularly challenging. Traditional cross-border payments can take days to complete and are subject to high fees and erratic foreign exchange (FX) rates. Several key players in the fintech space already offer real-time settlement systems, currency exchange platforms, and remittance networks that can coordinate and complete complex transactions in seconds. Not to mention, all these bells-and-whistles come at a fraction of the cost of the old-fashioned methods. Fintech solutions make trade using currencies other than the US dollar a reality. Accordingly, a global trade and supply chain network underpinned by fintech payments reduces the need to transact in global reserve currencies and mitigates FX risk.
Fintech-led advancements in finance are also primed to change the face of global trade. Conventional financing can be slow and cumbersome which can exacerbate existing bottlenecks and disruptions in the supply chain. Today, several fintech entities already make available superior freight factoring services, but more help is needed. Both trade finance and invoice finance practices could use a boost.
Trade finance is riddled with letters of credit, bank guarantees, and insurance. Meanwhile, invoice financing, rife with manual processes, demands modernisation. Fintech-related improvements could include efficiency and analytics gains or even proliferation of alternative qualification methods. Credit score, Paydex score, and credit history would no longer be the only games in town. Moreover, fintech solutions could be integrated into existing platforms to expedite or even make irrelevant antiquated requirements like letters of credit.
Perhaps most interesting, an entirely new financing option could be leveraged via buildout of a robust peer-to-peer (P2P) lending network focused exclusively on global trade. A P2P ecosystem would democratise access to funding, thereby reducing small business dependency on traditional banks and financial institutions. More inclusivity means more participation and more competitive terms. Such a fintech-enabled marketplace would easily remove barriers, increase liquidity, and reduce administrative burden.
Although fintech alone has the potential to transform the supply chain as we know it, combining it with 5G capabilities creates a multiplier effect. The faster speeds, lower latency, and greater bandwidth offered by 5G permits incremental improvements to real-time data collection and communications. Additionally, 5G reduces costs, increases security, and improves transparency. Data can be collected and transmitted from a myriad of sensors and internet-of-things (IoT) devices nearly instantaneously. As such, 5G enables an ideal information collection landscape where data is crunched faster, cheaper, and thanks to edge computing, closer to the source.
Because 5G improves real-time monitoring and analytics capabilities, combining it with fintech technologies equates to highly optimised supply chains from manufacture to last-mile delivery. Inventory levels, the condition of goods while in transit, and critical stage gates can all be monitored and actioned upon. For example, as information flows in, smart contracts can trigger real-time payments or other important automations. Combining these technologies increases speed, efficiency, and visibility. This means less supply chain disruptions, happier trade partners, and reduced costs.
In summary, systemic global trade and supply chain challenges can be solved using fintech innovations in blockchain, payments, and finance. Combining these technologies with 5G advancements means completely transforming the way we conduct trade. Blockchain offers security, efficiency, and transparency. Fintech payments afford real-time transactions, low fees, and flexibility across borders. And financial upgrades deliver digitalisation, modernisation, and improved access. As a result, organisations that embrace these innovations are likely to gain a significant competitive advantage in the global marketplace.
