Digital Trade Finance Solutions: Not Just for Large and Multinational Corporates

by Raphael Barisaac, Head of Trade Products, Global Transaction Banking, UniCredit

While much of digital innovation is directed at large and multinational corporates, small and medium-sized enterprises also stand to benefit considerably from digital technology – and can play an important role in driving adoption. For this to happen, banks must make solutions readily available to corporates of all sizes – from MNCs to SMEs – working with them to develop new and compelling use cases.

Small and medium-sized enterprises (SMEs) are just as well poised to benefit from digital trade finance solutions as their larger counterparts – and, what’s more, they could be the vehicle that drives mainstream adoption. Indeed, the sheer number of SMEs – combined with their agile set-ups – makes them an excellent breeding ground for developing further use cases.

This is something banks are bearing in mind while shaping their plans for both the current and the next generation of technological solutions. In particular, they must see it as a priority to provide SMEs with easy and convenient access to the latest digital solutions.

UniCredit is already putting this principle into practice. Advanced digital solutions, such as our innovative platforms for supply chain finance and BPO execution, offer clients of all sizes improved access to bank finance and support, while also enabling them to collaborate more effectively with their trading partners. In developing these platforms, we have given great thought to the SME segment, as well as to larger corporates, allowing flexibility with connecting to various data sources.

SMEs can drive the digital revolution

Certainly, helping SMEs in this way is an important step in digitising trade finance flows, as these companies are well-placed to underpin widespread adoption of digital trade finance technology.

This is because they are highly nimble – making it easy for them to adjust their processes quickly in order to accommodate new technologies and commercial models. What’s more, according to data from the World Economic Forum, SMEs make up 50% of global GDP and two-thirds of global employment – meaning they account for a huge proportion of global business. Therefore, if a significant proportion of these businesses begin incorporating digital solutions into their workflows, the potential for discovering new and compelling use cases is substantial. And these will be critical to bringing digital trade finance solutions into the mainstream.

Innovating for SMEs

Extending digital solutions to SMEs as well as large and multinational corporates certainly looks to be a promising approach for the trade finance industry – an area where digitisation is required to oust a host of lingering paper-based processes. 

One way in which this is beginning to happen organically is through the ongoing corporate shift away from traditional documentary credits and towards open account settlement. Historically, open account trading has limited banks’ role to executing payments – bypassing the many other valuable solutions, such as supply chain financing instruments, that we offer our clients today.

This is something UniCredit is looking to address through innovation – with a focus on SMEs. The Bank Payment Obligation (BPO), for example, offers a new means of settling trades that enables them to protect themselves against settlement risk and gain better access to innovative financial instruments.

The BPO offers robust risk mitigation and is fully compatible with digital processes – meaning it can be carried out far more quickly and simply than traditional trade finance processes. UniCredit is looking to capitalise on this fact with its own innovations, and, as part of this, we have created a single digital platform that enables companies to execute BPO transactions electronically from baseline to settlement. This platform is already live and uses client feedback to ensure maximum efficiency and usability in streamlining their processes.

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We are also looking to provide similar benefits to corporates of all sizes through our new trade finance portal, which includes – among other solutions – an advanced platform for executing supply chain finance programmes for buyers and sellers. Through this, we can offer suppliers highly favourable rates of financing – enabling them to sell receivables, for instance, based on the strength of their buyer’s credit profile. 

What’s more, our platform enables participating companies to create their own ‘supply chain communities’ – fostering greater collaboration, confidence and transparency between trading partners. For instance, companies connected via the platform can use shared data to agree mutually advantageous payment terms. These can be as simple or sophisticated as necessary, with a simple agreement using shared data to determine optimal terms between two counterparties, while a more sophisticated approach might use the same principle to create payment terms that meet the needs of a number of different participants in a chain.

Triggering collaboration

In practice, there is a vast supply of data that can be used to inform payment terms. For instance, one option is to use real-time data on the location and condition of traded goods to create payment ‘triggers’. In this case, trading partners agree a set of conditions, which, once satisfied, will trigger an automated payment from one to the other. For example, this could be the arrival of goods at their destination (or a checkpoint) – provided they arrive in an acceptable condition, as judged by pre-agreed metrics.

The advantages of this kind of approach should already be clear – with the bank platform offering corporates an easy and convenient way to achieve improved access to finance and a greater level of co-operation with trading partners. This leads to better payment terms, better transparency, and better relationships with all supply chain participants.

This kind of solution can help corporates maximise efficiency and minimise costs – promoting adoption among a crucial cross-section of the business world. Indeed, we have already said that the next wave of innovations will be driven as much by SMEs as by their larger peers – and our solutions aim to encourage such development. Certainly, if we can continue to put advanced digital tools, such as the BPO and our supply chain finance platform, in the hands of SMEs – while working with them to develop promising new use cases – we can unlock huge swathes of potential for increasing uptake of digital tools and improving the efficiency of trade finance flows.