Artificial Intelligence Platforms Will Drive The Next Phase Of Trade Finance Growth

By Dharmarajan Sankara Subrahmanianfounder and CEO, Impactsure Technologies.

Trade finance refers to products and financial instruments used to facilitate the export and import of trade and commerce—and thereby the smooth running of business. Some of the most popular instruments in trade finance are letters of credit (LC), bank guarantees (BG), documentary collections and remittances.

Essentially, these instruments have one primary function: to enable parties to the trade to make a transaction and mitigate the associated risks associated with supply and payment.

Trade finance drives the global economy. This segment will only grow in the future, notwithstanding temporary setbacks such as the Covid-19 pandemic or geopolitical conflicts.

While trade finance is growing, processing trade finance related documents poses real problems. Examining and investigating multiple documents is expensive, time-consuming, and error-prone. Large banks spend between $25 million and $42 million annually on risk, compliance, sanctions and anti-money laundering (AML) tasks.

Complying with the numerous regulatory standards across multiple countries, subsidiaries and branches is tedious. Although the advent of fintech and digitization has solved the problem to some extent, this complexity has remained. Many countries, including G7 countries, have committed to digitizing international trade. Customers also want a quick turnaround: the completion of all trade finance-related processing within the same day.

As a result of digital transformation’s greater adoption across industries, banks and finance entities are looking to transform their trade finance functions. The Covid-19 pandemic has seen an acceleration in the adoption of new generation trade finance processing platforms. This is also due to the increase in global trade volumes across nations, multinationals, domestic companies and especially the large micro, small and medium enterprises (MSMEs) that play a crucial role in global trade. A study by the World Bank indicated that 65 million MSMEs are credit constrained.

Progress on these issues can be faster. Many banks and businesses still rely on traditional instruments. Even today, much documentation work in corporate banking and trade finance is done manually, making it prone to errors and regulatory compliance.

Recently, innovations such as blockchain, artificial intelligence (AI), machine learning (ML), the Internet of Things, natural language processing (NLP), and advanced optical character recognition (OCR) have emerged in the space. These developments are a win-win for everyone: the banks, technology providers and the customers.

New AI-driven trade finance solutions enable bank customers, financial institutions and enterprises to easily manage their complex documentation and stringent regulatory requirements through advanced data processing and analytics capabilities in a fully secured environment. The solutions scan, process, classify and extract structured and unstructured data from documents in various file formats. Modern trade finance processing products can help users improve their efficiency by reducing manual efforts.

These solutions enable bankers to examine documents used in bank guarantees, letters of credit, remittances, collections and many other documents. New platforms analyze large volumes of data in real time. Such AI-driven technologies also help to meet the environmental, social and governance (ESG) requirements. They can help reduce the use of natural resources such as paper, computing power and electricity.

The success of any technology or strategy is in its effective execution. Institutions should look for a solution provider with good domain expertise and technological proficiency. The provider should already assist several global banks, institutions and enterprises with proven technology in the domain, which can help shorten the learning curve when it comes to implementation. The technology can be a one-time investment, along with annual support and licenses, or it can work as a subscription-based model.

During implementation, organizations must remember that AI solutions are not a destination. They are a journey. AI continues to improve over time with more and more data. In the beginning, if your data is limited, the accuracy of the AI ​​solutions may also be limited. In such a case, you need to feed it more and more data and grow it over time. This may not be possible for organizations with very little data to work with.

The trade finance software market is estimated to grow to about $3 billion, so it’s not going anywhere anytime soon. Now is the time for organizations to start considering trade finance software and vetting solutions that can help them digitize their processes and grow with the industry.

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