Trade Finance Moves To Stabilize A Volatile Market

The brewing of global trade wars has importers and exporters reeling.

Smaller trading businesses, in particular, are struggling to manage the sudden costs of tariffs, as well as the unexpected volatility of supply chains’ geographic adjustments to avoid those fees.

Last month, The Washington Post reported more than 40 conglomerates, including Google and Dell, have nixed working with Chinese vendors in an effort to avoid those fees that aim to encourage businesses to shift their supply chains to the U.S. The trend shows no signs of slowing, as earlier this week Bloomberg reported more technology conglomerates, including HP, are similarly moving production out of China.

Beyond the U.S.-China dispute, another trade war is brewing between South Korea and Japan with similar effects of sudden supply chain rerouting and disruptions.

“We have increased our estimate of the growth impact of trade war,” Goldman Sachs Chief Economist Jan Hatzius wrote in a note last week. “The drivers of this modest change are that we now include the sentiment and uncertainty effects and that financial markets have responded notably to recent trade news.”

With analysts warning of the implications of these trade disputes, including currency fluctuations and economic repercussions, the pressure for businesses to weather the trade-dispute storm grows even higher.

Glenn Kocher, managing director at trade finance technology firm LiquidX, says the volatility of today’s cross-border trading market makes availability of working capital particularly important for small and medium-sized businesses to manage the sudden changes and extra costs of their global supply chains — especially across Asia.

“What it comes down to is the stability of capital markets and having certainty around the access to the capital, which is needed to run a business,” he told PYMNTS in a recent interview. “Trade finance has a significant role to play by being the conduit structures through which companies access capital to support their global trade ambitions.”

With China, South Korea and Japan all embroiled in trade disputes, the Asia market is ripe for trade finance solution providers to step in and offer financial support to companies based in the region.

But across the globe, access to trade finance can be stifled. The Asian Development Bank says there is a $1 trillion-plus gap in available trade finance necessary to facilitate cross-border trade, with SMBs disproportionately impacted by that lack of access to capital.

According to Kocher, bank-FinTech collaboration is key to addressing that gap, particularly in Asia.

“The vast majority of banks have not historically invested in the product infrastructure needed to access the trade finance and working capital asset classes, but now see an opportunity to partner with FinTechs in order to grow their business,” he said. “The push from corporates is also driving adoption of various FinTechs.”

LiquidX recently announced its own collaboration with a traditional bank in Asia, Singapore-based DBS Bank. Their partnership pulls DBS onto the LiquidX network to connect its own business customers with access to trade financing solutions and products. At the same time, LiquidX also announced the opening of an office in Singapore, where it will headquarter its operations in Asia — a key market not only for LiquidX, said Kocher, but for trade finance technology companies positioned to help businesses in the region manage the volatility of trade disputes.

Asia is a bright spot for bank-FinTech collaboration, particularly in the area of trade finance. The region operates with “an economy which is largely based on trade,” Kocher noted, making it a prime target for bank-FinTech innovation.

“We must also remember the importance of the region as being fundamental to global supply chains,” he said. “Many countries in the region serve as the manufacturing base for North American and European multinational corporates.”

Kocher said that as a result, businesses across Asia are especially receptive to new technologies emerging from bank-FinTech collaboration. From the public sector, government efforts like those seen with the Monetary Authority of Singapore demonstrate the government’s support of FinTech innovation and adoption, too.

Regardless, there are the inevitable skeptics, including those within the banking sector struggling to adjust to a rapidly-evolving FinTech ecosystem facing increasing pressure from trade disputes.

“There are several banks that are quite advanced with their digital strategies and are embracing FinTechs and the opportunities they present to run their franchises more effectively,” Kocher said. “However, there are currently so many FinTechs entering the space, that it can have the negative effect of confusing banks and making them more reluctant.”

Nevertheless, the region continues to promote bank-FinTech collaboration. While Asia may be especially vulnerable to the high-profile trade disputes plaguing many global traders today, current market conditions also make the region especially receptive to the FinTech innovation and bank collaboration necessary to mitigate the cash flow pressures arising from those trade disputes.