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Cash and trade: Moving faster, moving Closer

By Michael Sugirin and Amit Vyas

Historically, cash management and trade finance have existed in parallel, however, this situation is now changing. Some factors that have led to this change include:

  • the entrance of innovative disruptors in both cash management and trade finance
  • the acceleration of online B2B purchasing
  • the reduction of supply chains and the proliferation of domestic faster payment systems.

Collectively, these and other factors are driving the increasing convergence of cash and trade to support a more integrated commercial environment.

Payment infrastructure evolution

Faster payments

Payment infrastructure has been evolving rapidly in various areas in recent years, but one of the most striking changes has been the emergence of faster payment systems that enable near-instantaneous domestic electronic payments. There are currently 43 faster payment systems live around the globe (another 15 being planned) with markets such as Singapore, Hong Kong and India being rapid adopters. This shift is already delivering real benefits. Such benefits include not only reducing the use of physical cash, which is both labour intensive and high risk, but also enabling faster circulation of cash, which supports growth in domestic economies, particularly for those with less easy access to working capital, such as SMEs.

Cross-border payments and mobile wallets

Another important trend in payment infrastructure has been the adoption of SWIFT's global payments innovation (gpi), which enables participants to track their cross-border payments in real-time. This also has the advantage of scale and reach, given the number of banks on SWIFT. This is an important change, because it addresses the historic challenge of it being slow, difficult and costly to track international payments.

At the same time, international payments are becoming faster and cheaper due to the adoption of technology. Through the use of new platforms, instant cross-border payments, including mobile wallets, are expected to account for USD 14 trillion of payments per year by 2022. This combination of global payments via a low cost network and the use of mobile wallets is particularly supportive for SMEs looking to expand globally. Moreover, it enables multinationals to reach out to smaller SMEs and digitise the disbursement process.

Trade finance

Similar disruption to that seen in the payment infrastructure is also underway in trade finance: innovations are underway in digitisation, platforms and data, but a common theme is that technology is becoming far more collaborative than hitherto. This is making it far easier for participants to obtain a holistic view of both the physical and financial sides of trade at the same time.

In addition, the move away from paper in trade finance is enabling a more efficient market. The digitisation of trade and the increasing connectivity to trade platforms give financing providers better visibility of clients' trade performance and business patterns. Coupling this with the important role and growing adoption of trade finance platforms delivers multiple benefits for corporates. These include opportunities to digitise their trade process and achieve better visibility of their business. At the same time, they will be able to connect, access and interact with their banks more efficiently, thereby enabling organisational agility.

Integrating payment infrastructure

Combining these two trends presents interesting possibilities, especially when paired with the popularity of APIs (Application Programming Interfaces). APIs facilitate deeper integration, and as a result, banks can embed their functionality in their clients' ERP systems and/or third-party cloud systems, rather than clients having to use standalone bank platforms.

One factor facilitating the move towards APIs is the recent shortening of supply chains. Moreover, greater supply chain transparency further increases the chances of fuller/faster integration within supply chains, though there is still some way to go before cost-effective financing mechanisms are automatically embedded in trade platforms. Furthermore, these platforms may also include services such as logistics, customs, regulatory and tax filing – therefore potentially providing a one-stop shop for purchasing decisions, payments, trade finance, and business services.

Some fintechs have already made a start in this sense by launching holistic trade solutions (including logistics, customs, and regulatory compliance) that can be applied across multiple markets. This, in turn, facilitates major growth in trade activity among SMEs, many of which – especially those in markets with currency restrictions – simply do not have the bandwidth to cope in house with all the logistics and regulation of global trade.

Looking ahead

B2B ecommerce growth is certainly driving the need for digitisation and integrations across platforms, particularly since businesses are increasingly making buying decisions online. They also wish to action them immediately, which requires both embedded credit and cash payment facilities. In the case of the latter, there is a direct link with progress in instant domestic and cross-border payments. This is particularly relevant and valuable for treasurers looking to maximise efficiency by using just-in-time funding to better support businesses in an increasingly dynamic operating environment.

Finally, it is worth noting the proactive stance of regulators to cash and trade finance innovation, both individually and jointly. Various regulators have established sandboxes to facilitate the development of new disruptive technologies, which cultivates the accelerated innovation of cash and trade integration. Governments have also been active with initiatives supporting the same goals, such as Singapore's Networked Trade Platform.

Cash and trade may not yet function as one, but there are clear signs that they are moving in this direction. Numerous factors, ranging from real-time cross-border payment tools, increasing B2B volumes and demand, to the use of disruptive technologies, are all driving integration. This places an onus on banks to facilitate this by engaging with fintechs and trade platforms alike, to the ultimate benefit of clients.

Read The Paypers B2B Payments and Fintech Guide here:

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