Trade finance is an industry that’s historically been inundated with paper trails and inefficiencies, and which still heavily relies on paper, phone calls, emails and fax machines. But with the emergence of new technologies and innovative business models, fintech companies are poised to disrupt the age-old processes that make up trade finance.
One of the major challenges faced by SMEs today is access to financing. The Asian Development Bank (ADB) estimates a US$1.5 trillion gap in global trade finance in 2016 with micro, small and medium-sized enterprises (MSMEs) being the hardest hit by gaps in trade finance. In 2016, as much of 74% of rejected trade finance transactions came from small and medium-sized enterprises (SMEs) and midcap firms.
Fintech companies like Swiss startup Tradeplus24 have emerged over the past years to provide businesses with an easy paperless way of leveraging their global receivables. The company, founded in Zurich in March 2016, provides flexible and Bank level priced funding to SMEs using their receivables as security. Partnered with and invested in by Credit Suisse, Tradeplus24 is about to go global with its unique product.
Tradeplus24 currently serves businesses in Switzerland and launched recently in Australia after raising CHF 120 million in debt and equity in one of the largest raises this year led by SIX Group and Berliner Volksbank Ventures. From what is known, they plan to go into further European and Asian countries in 2020.
Tradeplus24 will be one of the Swiss shining stars promoted to the Asian market at the annual Singapore Fintech Festival taking place from November 11 to 15, 2019 as part of the Swiss Pavilion.
Other alternative financing solutions for Swiss SMEs include the market’s numerous peer-to-peer (P2P) lending and marketplace lending platforms that mainly focus on small ticket lending and have a limited scope for leveraging global receivables. This market segment will come heavily under pressure in the coming months and years as the more traditional banks look for returns and are opening up their lending books at rates that the peer-to-peer market cannot compete with. Popular brands focusing on the business segment include Swisspeers, Creditworld and Acredius, while platforms such as Cashare, CreditGate24, Crowd4Cash and Lend are active in both the consumer and business segments.
One particular technology that has been extensively explored by banks and financial institutions alike for its potential in trade finance is blockchain.
The promise of blockchain is that the technology could enable unprecedented efficiency by fully digitalizing processes. Additionally, blockchain could allow for more transparency around trade transactions and operations, including everything from tracking invoices to digitizing documents.
HSBC, Standard Chartered and others are part of a range of consortia that have had successful pilot using distributed ledger technology (DLT) to process live trade finance transactions.
Komgo is a Geneva-based blockchain software provider launched in September 2018 by a consortium of some of the world’s largest commodity trade finance banks. Komgo provides a blockchain-based trade financing platform that has already facilitated nearly a billion USD of financing for its members.
Swiss blockchain startups that are redefining trade finance include Gatechain, a Zurich-based startup leveraging blockchain to remove paper-based documents and allowing for documents to be exchanged digitally, and Cerealia, which provides a marketplace for grain trading, financing and tokenization.