Exeleon Magazine

5 Cross-Border Trade Challenges That Can Be Addressed by Digitalization

Cross-Border Trade Challenges

Corporate banks are critical for helping drive growth and innovation in SMEs as well as in larger corporate clients. However, corporate banks and other similar financial institutions (FIs) are now at risk due to the slow adoption of key digital processes and technologies required to handle increasing volumes of cross-border transactions.

Critically, many smaller FIs remain reliant on paper-based processes or ad hoc solutions with free or legacy software, something that may put their survival at risk in an increasingly globalized world.

With global trade links growing at an unprecedented pace, FIs of all kinds need to undergo complete digital transformation to meet the needs of today’s international businesses more effectively. FIs that are unable to facilitate the growing volume of cross-border trade may soon become irrelevant if they don’t invest in current-generation corporate banking solutions and the human systems needed to maximize them.

Here are some of the cross-border trade challenges that banks can address through properly managed digitalization:

Process Inefficiencies Inherent to Paper-Based Processes

Paper-based processes have little place in modern international finance. Compared to fully digital solutions, using paper documents significantly raises the cost of international trade and increases the risk of human error.

These costs can be extraordinarily high with certain kinds of transactions. For instance, letters of credit may sometimes require over 20 parties to process hundreds of pages. Requiring each party to sign off with traditional wet signatures can be extraordinarily cumbersome and expensive in these cases, creating a significant barrier for the party requesting funds.

Recent advances in digital corporate finance can dramatically lower the cost to process these complex transactions. Banks employing these systems can thus solve very thorny financing issues for their clients, paving the way for customer loyalty and increased market share.

A Lack of Automated Record-Keeping 

One of the most important reasons for corporate banks to digitalize their processes is to enable accurate and timely record-keeping.

Traditional paper-based processes can often lead to data siloing and information asymmetry between different parties. This can make it difficult for banks to assess credit risks, and it may dissuade businesses—particularly SMEs—from accessing timely credit. These issues can hamper businesses’ resilience as well as their ability to capitalize on opportunities in other markets, potentially limiting their growth.

Digitalization through a trusted technology platform should also enable data automation, thus permitting records to be automatically shared with whichever parties need them. This permits better risk assessments and prevents the information asymmetry that makes it difficult for SMEs to qualify for loans.

Opaque Processes That Obfuscate the Nature of Transactions 

Compared to digital processes, paper-based processes lack transparency. It takes significantly more effort to access paper documentation over digital equivalents. This extra burden, in turn, serves to hide fraudulent activity. Indeed, the persistence of manual processes is often exploited by international money launderers.

Banks that want to be able to stop money laundering activities and maintain the trust of their clients should consider moving toward digital processes. Digitalization enables banks to leverage powerful artificial intelligence and machine learning solutions to scan millions of documents for fraud patterns and other irregularities, freeing up human anti-money laundering specialists to concentrate on more important decisions. This capability will allow banks to safely process high volumes of international transactions without impeding legitimate cross-border trade.

Increasingly Complex Regulatory Issues

Regulatory compliance gets more complex each year, making it progressively difficult for humans to perform. These regulations are further increased in cross-border exchanges, creating additional complications for banks that rely on manual processes. What’s more, manual processes increase the chances of human error, resulting in an increased risk of regulatory fines and sanctions. It’s also worth noting that exchanges involving many international jurisdictions require participating banks to already be on digital platforms.

Digitalizing compliance processes is a no-brainer for corporate banks as it allows secure transfers to and from more overseas destinations. It also reduces the strain on bank employees by permitting compliance activities to be effectively automated, reducing banks’ regulatory risks and maintaining their reputation.

Slow Verification Processes

Even today, international money transfers through banks usually take a few days to clear. This is partly due to the use of manual processes and outdated systems. These delays could be especially disadvantageous for time-sensitive international transactions, leading many businesses to rely on card companies or alternative financial services for their international payments.

Digitalizing processes ensures that banks can send payments much faster, allowing them to directly compete with financial services that specialize in cross-border remittances. Given the growing importance of international trade, being able to facilitate cross-border payments faster may soon become critical for mainstream financial institutions.

Corporate banks that seek to remain relevant in today’s global business landscape should take serious steps to digitalize their processes, particularly those related to international transactions. Even micro businesses are now connected to international markets and supply chains, making it important for FIs to seamlessly facilitate cross-border remittances and other services.

Selecting the right technology providers can help FIs digitalize their processes, allowing them to tackle even the most complex cross-border trade challenges, thereby reducing risks and enabling better competitiveness. Likewise, investing in employee training will help FIs make the most of their corporate banking solutions, giving them the edge, they need to effectively meet the needs of globally ambitious clients.

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