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How Digital Trade Finance Is Improving Trade Transactions For Importers & Exporters?

Aug 04, 2021 - 10:54 AM Author - Alex Pardin


Trade finance is an important component of global trade and as the world economy is recovering from the global pandemic of Covid-19 to survive in the competitive market, we are witnessing transformed trade finance activities with the adoption of digitization. Many large, small & medium-sized enterprises are revaluating their business processes, and are executing trade transactions way efficiently by going digitized to have a noticeable role in the global recovery. 

Furthermore, digital trade finance is likely to become a determining factor in how well the recovery will take place. This is the reason several countries around the world including G7 are shifting towards a completely digital trade & trade finance system. 

But how is it benefitting the global importers & exporters across the world in their trade processes? Let’s find out:

Impact Of Digitization Of Trade

The traditional process of trade finance has always been relying on a vast amount of documentation, but in the aftermath of the global pandemic, the blockchain & other technologies naming artificial intelligence (AI), and robotics are at their peak & transforming the trade & supply chain activities for importers & exporters. This is the reason that the concept of digital trade finance that has been around over the past decade has never gained this level of popularity, & fast adoption among trade leaders which it is experiencing in the post-pandemic period. It is propelling the trade finance industry to go digital to facilitate comprehensive trade finance services to customers.  

Recommended Read: How Can NFTs Be A Game-changer In Revolutionizing Trade Finance?

If import & export trade businesses want to survive in the global market, they are required to undergo a complete revaluation of supply chain risks to pace with the digitized trade finance activities. It simply deals with streamlining the processes and reducing the costs. Though most of the trade finance instruments, for example, Letters of Credit, Bank Guarantee, and others are on their way to go digitized, a fully-featured digital trade finance platform still needs to come. 

How Is Digital Trade Finance Beneficial For Importers & Exporters?

1. Digital trade finance services make it easier for importers & exporters to keep track of all their trade finance transactions, both domestic & global in an advanced, easy-to-use, and highly accessible interface.

2. In addition, it also allows corporations to better control their credit facilities, reduce fees, and accelerate the application process, enabling them to boost their transaction volumes without any requirements for additional credit. 

3. Parties-to-the-contract will be able to execute & manage paper-based, digital trade finance processes easily. 

4. Export Letters of Credit are being prepared quicker with fewer errors, allowing exporters to negotiate better pricing.

5. Digital technologies in the trade finance sector have the power to ensure global accessibility for importers & exporters. 

6. Importers can claim the goods earlier after the exporter sends the original paper documents to the issuing bank while providing electronic copies to the domestic bank.

7. A transparent digital trade platform enables data collection and analytics for trade finance providers to better understand their clients and manage risks.

8. Digital platforms in trade finance, especially those which are backed by blockchain will provide collaboration & information sharing opportunities between trade finance providers. This further brings effective due diligence and mitigates the risks of fraudulent activities.

9. Blockchain-inspired digital trade finance service platforms with the use of smart contracts & end-to-end tracking are automating the entire trade finance processes as well as reducing the requirements for human intervention.

Recommended Read: What Are The Major Challenges In Trade Finance And How To Manage Them?

Though the benefits of digital trade finance are endless, it can take a significant amount of time for parties to onboard for each transaction. There are also implications for banks as they need to make sure that the clients are fully protected in terms of information security, the transmission of authentic transaction data, the on-time processing of data, and compliance with relatable laws and regulations. But trade finance industry leaders are working hard to facilitate digital delivery and accessibility. The pandemic is forcing countries around the world, along with G7 to amend laws and transform paper-based systems into ones that can handle digital trade transactions