Trade finance refers to products and financial instruments used to facilitate the export and import of trade and commerce—and, thereby, the smooth conduct 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: enabling parties to the trade to make a transaction and mitigate the associated risks related to supply and payment.
Trade finance drives the global economy. This segment will only grow in the future, notwithstanding temporary setbacks like the Covid-19 pandemic or geopolitical conflicts. While trade finance is growing, processing trade finance-related documents pose real problems. Scrutinizing and vetting multiple documents is costly, 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 several countries, subsidiaries and branches is tedious. Though the advent of fintech and digitalization has solved the problem to some extent, these complexities have remained. Many countries, including G7 nations, have committed to digitalizing international trade. Customers, too, want a quick turnaround: the completion of all trade finance-related processing within the same day.