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Transformation brought by Automation in Trade Finance – The next frontier

Swati Rai | MAR 17, 2021

What is Trade Finance ?

Today 80-90% of global trade relies on some or other type of trade finance it is estimated that every second there’s an exchange of goods-service happening on trade finance. Trade finance is an essential part of export – import. But before we discuss this in depth lets answer the question, what is trade finance? In its simplest form, the function of trade finance is to introduce a third-party to transactions to remove the payment risk and the supply risk. Trade finance provides the exporter with receivables or payment according to the agreement while the importer might be extended credit to fulfil the trade order.

“As per Technavio trade finance market will grow by USD 11.25 billion during 2020-2024, progressing at a CAGR of over 4% during the forecast period.”

Trade Finance

Trade Finance & Banking

Trade Finance is a business characterized by small margins, it is one of huge volumes: As per a report by ICC by 2026, trade flows are predicted to reach US$24 trillion. Given this growth trajectory, banks have identified trade finance as a critical pillar of their future business strategy. However, market growth alone is not the only ingredient for success. To succeed, banks must position themselves as leaders in the digitization of trade finance. Because only through maximized digitization, automated processing and comprehensive audit capabilities in a multi-step, multi-part processing ecosystem like trade finance can financial institutions be competitive enough to pick the fruits of market growth.

“With rising trade volumes banks are exposed to diverse risks and high degree of regulation. It is estimated that 4 billion pages and documents circulate in documentary trade alone.”

What are the challenges in Trade Finance ?

In general, trade finance workflow has four stages before settlement takes place. During the trade finance transaction, a bank receives the documents, such as application forms, bills of exchange, commercial invoices, transport documents, insurance documents, purchase orders and debit/credit notes, and statements. Data from these documents is then analyzed and captured in the bank’s core processing infrastructure. At many points during this journey, transaction processors are required to validate details and make decisions, mostly in a manual way.

Challenges in trade finance

Therefore following are the challenges which are there in the trade finance operations -

  • Highly paper based –labor intensive process

  • Fragmented information

  • Lack of standardization

  • Time consuming and error-prone process

  • Regulatory and compliance constraint

  • Operational risks due to highly manual processes

Is automation an answer to Trade Finance?

With technology as a key enabler, the trade finance industry is facing a major technology overhaul. Banks are in a race to go digital. While many are trying to digitize their front end, others are collaborating to build blockchain-based network for automating trade. But the use of Robotic Process Automation (RPA) technology seems to be the most apt solution, especially since the technology has become a universal enabler in banks these days. RPA is best described as a business process tool to automate manual, intensive, repetitive and rule-based tasks.

Does RPA solves the trade finance problem?

  • Using intelligent OCR to digitize and turn unstructured documents into readily available data sources

  • Applying artificial intelligence (AI) or machine learning (ML) along with natural language processing rules to carry out documentary checks

  • Leveraging AI and ML interfaces to run compliance checks, such as on vessel and name screening


What are the benefits of the solution ?

Trade Finance automation can deliver benefit in four key areas - enhanced CX, improved operational productivity and efficiency, reduced regulatory and compliance risks, and optimized costs other than these, there are some benefits observed by some of our clients who have used this solutions are -

  • Speedy application & compliance document verifications with NLP-based entity

  • Handling of multiple data formats with a single platform with ease

  • Enabling assisted validation and screening of entities for automated compliance checks & risk

  • Assisted operations integrate to the existing process and improve efficiencies

Staying ahead of curve

The move towards digitalisation of trade finance processing not only improves internal risk management systems; it helps to meet regulatory requirements more efficiently. But for banks to remain agile in a regulatory-intensive environment, while also staying ahead of the curve in the face of such fast-moving technological advancements, may seem daunting.

But at NSEIT we can help to give that innovative edge to regulators, fellow banks and our clients, and together we can embark towards a faster yet equally secure trade environment of tomorrow. Get in touch with us to know more about trade finance automation and trade finance services or to introduce automation in your ecosystem.

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