Finance and Accounting

Exploring the impact of digital financial services on global trade and commerce

The evolution of digital finance has brought about a revolutionary shift in the global economy. It has helped businesses navigate economic disturbances like the global pandemic, wars, or supply chain disruptions. The recent technological advancements and changing customer expectations have resulted in the widespread use of digital financial services worldwide, offering enhanced convenience, accessibility, and security to businesses and customers alike. As a result, the global digital finance market is set to grow from $3,835.2 million (2023) to $10,095.7 million (2031) with a 13.05% CAGR.

The increasing popularity and adoption of digital finance solutions have also influenced global trade finance. They are helping overcome the challenges in traditional trade practices, simplify cross-border capital flows, and help companies and countries establish their international trade status.

Overcoming the challenges in the traditional global trade finance landscape

The traditional global trade finance landscape had many structural issues that not only increased the cost of trade but also made it difficult for newcomers to establish themselves on a global scale. Some of the major challenges that characterised the global trade of the past include:

• Paper-based process inefficiencies: Global trade finance has traditionally relied, and in some cases still relies, on paper-based transactions that are not only inefficient and error-prone but also expensive and resource-intensive.
• Complex and costly regulatory compliance: Regulatory compliance, such as know-your-customer or anti-money-laundering compliance, is often the biggest hindrance, in terms of process complexity and cost, for many businesses.
• Information asymmetry: Reliance on past trade relationships or collateral can often result in larger corporations having better access to finance than SMEs or new players in the market. This information asymmetry between the two can lead to either high-risk premiums or limited trade finance expansion, especially where such provisions are needed the most.

SMEs and businesses operating in developing economies often struggle the most when navigating these challenges, which restricted global trade access to larger businesses and limited a country's international trade status in the past.

Digital finance transforming global trade and banking

The rise and advancements of digital finance have played a pivotal role in overcoming the challenges in traditional global trade and banking practices, ensuring convenience and accessibility for all. As a result of the widespread adoption of digital financial services, countries across the world are adopting digital payments, which are not only eliminating barriers to cross-border capital flows but also improving the country’s international trade status.
The rise of fintech has played a significant role in this transformation, automating manual processes, offering real-time insights, and facilitating informed decision-making in trade finance. Some of the key digital finance solutions changing global trade and banking include:

Process and reporting automation

With data coming in from multiple sources, automation solutions make it easier to streamline data collection, organisation, analysis, and visualisation processes. This not only reduces the time and resources necessary but also offers real-time actionable insights for more efficient decision-making.




Blockchain

Tamper-proof decentralised ledger technology has revolutionised supply chain finance, especially when dealing with stakeholders in the international market environment. Blockchain eliminates intermediaries, bringing transparency to transactions, ensuring automatic contract enforcement, reducing the risk of fraud, and accelerating the overall supply chain finance processes.




Artificial intelligence and machine learning

AI and ML solutions take manual elements out of data analysis when predicting potential risks and developing risk management strategies. With AI and ML algorithms, you can analyse vast datasets and get insights in real time, identify patterns, and assess the credit risk of different stakeholders. This becomes particularly crucial in global trade finance as parties from different countries may have differing parameters establishing varying creditworthiness.

The extent of the impact digital banking and payment systems may have on the global trade finance and trade status of a country may vary depending on the technological infrastructure and trade openness. However, the advent of digital finance has reshaped global trade and commerce. Despite challenges such as cybersecurity issues, inadequate infrastructure in developing countries, and inconsistent legal frameworks, digitising global trade and banking offers a huge opportunity for financial inclusion. This can create opportunities for all to benefit from the globalised market environment of today.

How can Infosys BPM help enhance operational efficiency in global trade finance?

Digital financial services have played a pivotal role in bringing digitisation to global trade and commerce, overcoming the challenges of complex manual processes and costly compliance. Infosys BPM digital finance solutions are also playing a key role in helping businesses expand their operations and enhance operational efficiency in global trade finance by leveraging the best-in-class technology ecosystem. With solutions ranging from points solutions, robotic automation, and AI to blockchain and digital operations, Infosys BPM can help you simplify end-to-end processes and enhance stakeholder experience as you navigate the global trade landscape.