Trade and supply chain finance industries are at a turning point, with emerging technologies and the increasing volume of accessible data setting in motion the rapid evolution of new ecosystems.
These are the key findings of a new industry whitepaper that’s been jointly released by Commerzbank and the Fraunhofer Institute for Material Flow and Logistics (IML). The whitepaper, entitled ‘Relevant Advanced Technologies for Trade and Supply Chain Finance‘, highlights how digital advancements are pushing the development of improved business models to meet the need for increased operational efficiency and alignment with more complex sustainability goals.
This whitepaper is the most comprehensive body of research currently available looking at the trade and supply chain finance sector and comes at a pivotal time for trade participants. It is the culmination of a long-standing partnership between Commerzbank and Fraunhofer IML.
The report identifies the key innovations that are forming the building blocks of the new trade finance ecosystems, including:
- Big data and Artificial Intelligence (AI)
As one of the world’s most data-intensive industries, trade and supply chain finance is transforming at a rapid pace with the ability to share and process vast volumes of complex information. Big data has been highlighted as an “indispensable” source of technological innovation but can only be effective if implemented in tandem with other technologies.
As stated in the whitepaper: “Big data analytics can help financial institutions to leverage the wealth of trade data stored in multiple databases across different geographies along the supply chain […] by identifying data trends and flagging anomalies, banks can detect fraud at an early stage.”
With global data set to grow by 500 per cent between 2018 and 2025, the report explains that effectively processing this mass of information will be the main challenge for banks and trade participants, but also enables AI and machine learning solutions to automate decision-making processes and forecast trends in risk management, financial analytics, and portfolio management.
- Blockchain, Distributed Ledger Technology (DLT), and smart contracts
The report looks at the growing opportunities for businesses in the form of B2B platforms, which can reduce boundaries, improve transparency, and support automation. It predicts that these platforms will profoundly alter the way in which international trade is undertaken. One such example is the blockchain-enabled, distributed trade network Marco Polo.
Developed by an international consortium including Commerzbank, the solution significantly increases the speed and transparency of trade business by automatically matching digital trade data.
Furthermore, the whitepaper also explains that DLT and blockchain technology could reduce trade finance operating costs by 50 to 80 per cent and improve turnaround times three- to four-fold. The barriers removed could lead to more than $1trillion in new trade over the next decade.
- Internet of Things (IoT) and sensorics
By 2030, the number of internet-connected objects will reach more than 125 billion, according to a preliminary forecast by the American Bankers Association. The networking of each object opens new revenue opportunities in novel demands on payment and finance flows.
One application scenario in supply chain finance arises through the creation of automated payment solutions triggered by sensor data. By linking the physical and financial supply chain using IoT, it is possible to design fully automated order processing along the entire supply chain.
“Supporting Germany’s trade corridors is in Commerzbank’s DNA,” comments Nikolaus Giesbert, Divisional Board Member at Commerzbank, “and we finance around 30 per cent of Germany’s foreign trade. That is why it is vital we have our finger on the pulse of the latest technological advances in trade finance and deliver enhanced solutions to our clients. We very much value our partnership with Fraunhofer and hope this whitepaper serves as a catalyst to drive further discussion and action across the industry.”
Dr Michael Henke from Fraunhofer IML in Dortmund adds: “The trick to reaching the plateau of productivity quickly is to combine all the technologies we have in our hands today. That’s what we are doing in our collaboration with Commerzbank, where we’re consistently integrating the financial flow with the material- and information flow.”