Total value of global trade is $72 trillion, almost equal to global GDP. International trade value is forecast to double by 2020. Trade finance revenues forecast to increase by 68% by 2020 with revenue from open account doubling. High time for banks to invest.
Today the international trade flow is concentrated in intra-Europe (US$ 5.54 trillion) and intra-APAC markets (US$ 4.11 trillion), however the focus is shifting to APAC rapidly. APAC trade is driven by letters of credits compared to open accounts in Europe and Americas. The top trade corridor is shifting towards emerging and advanced Asia from western Europe.
Trade finance remains one of the most complex banking businesses to automate, owing to intricacies in international trade practices. While banks find it a challenge to automate such complex functions, trade finance business model itself undergoes a major change. Open account becomes the preferred mode of payment. Use of open account transactions in lieu of financed trade is rising, as large corporations demand open account trading terms from their smaller suppliers. Only 15% of global trade is accounted for by letters of credits.
Analysts observed a wide gap between corporation's expectation and bank's offering. There is a lag in the entire trading life cycle due to document intensive transactions, multiple process stages and lot of manual checks. Disparate systems make data retrieval and transaction processing, a time consuming process. Corporations look for higher STP rates, modular solution, seamless system integration and configurable changes to dynamic regulations. But 85% of banks still need high manual intervention in offering trade services.
Banks must offer integrated platform to automate the complete cycle of trade finance transactions, in line with the International Chamber of Commerce and SWIFT requirements. It should effectively respond to changing regulations and standards, to truncate the process time demanded by corporations and to changing complexity of work flows. Not only should the technology provider meet the trade finance product processing requirements, it must offer a fully integrated work flow and imaging solution for real time transaction processing.
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