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Recent developments in tech-enabled trade finance

31 July, 2020Ouida Taaffe

The Covid-19 crisis has been particularly hard for small to medium enterprises (SMEs). But fintechs are finding ways to apply technology to assess risks and to lower the costs of trade finance – making it far more widely accessible to small firms.

Connected-earthEven in good times, small firms are often excluded from trade finance.

“The reality is that the level of work that has to be put into ‘know your customer’, anti-money-laundering and coaching for SMEs is prohibitive for traditional trade finance lenders,” says Alexander Malaket, President of OPUS Advisory Services International.

“That is why platforms are making inroads. That approach is more economically viable.”

How blockchain is supporting trade finance

Blockchain continues to be a focus.

Contour, based in Singapore, announced in mid-July that it had completed its first digital letter of credit, in collaboration with DBS Bank. The letter of credit was between Nanjing Iron & Steel, Singapore Jinteng International and Hope Downs Marketing Company.

Marco Polo claims to be the biggest blockchain-based trade finance network. In May it said that İşbank was the first Turkish bank to carry out a digital trade finance transaction using blockchain in collaboration with Commerzbank.

Also in May, IBM took a 7% stake in we.trade – a blockchain platform backed by CaixaBank, Deutsche Bank, Erste Group, HSBC, KBC, Nordea, Rabobank, Santander, Société Générale, UBS, UniCredit.

we.trade aims to be interoperable with other trade finance blockchains around the world. However, the Global Trade Review reported in June that we.trade had laid-off around half of its staff because it could not access sufficient funding from shareholder banks.

How fintechs are helping SMEs access trade finance

SMEs are not just front of mind for policy makers, they are also seen as an opportunity by fintechs.

Greensill in the UK – which provides non-bank supply chain finance – acquired Omni, a digital lender in Columbia. Greensill is funded by the SoftBank Vision Fund.

Mastercard is working with Octet Europe to offer SMEs in the European Economic Area (EEA) a ‘Mastercard Trade Solution’. Octet’s platform will enable SMEs to use a mastercard to manage cashflows and pay suppliers – even if their counterparty does not accept card payments.

It also promises to do away with the need to run expensive background checks on suppliers and to simplify back-office functions.

Stenn – the London-based provider of non-bank invoice financing – announced in June that Barclays Bank, Crayhill Capital Management and Coface SA had joined Natixis, NN Investment Partners and M&G as investors.

Stenn claims that its “fully digital financing is unique in international trade”. It can fund and manage up to US$15m online.

Will bigtech move into trade finance?

Bigtech is increasingly present in financial services.

Facebook, for example, has payments functionality. And its plans for Libra, a digital currency, have clear large-scale, cross-border applications.

It would still be a major leap to get involved in trade finance – particularly as so many of its processes require paper documentation.

However, BigTech is likely to be well positioned to work with SMEs that want to trade internationally once regulation allows. Google, for example, is working with Ecobank in Togo on ensuring that SMEs can make the best use of digital banking. 

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