Looking Beyond Machine Learning To Balance Out Trade Finance Supply And Demand

The International Chamber of Commerce Banking Commission recently released a report that found an imbalance between supply and demand of trade finance services. Its Global Survey on Trade Finance, which surveyed financial institutions across 98 countries, found that 61 percent of banks say they face greater demand for trade finance than they can supply.

More than two-thirds told researchers that compliance and regulatory requirements are holding them back from providing more trade finance in the short term, while cost control pressures were identified as the top challenge for FIs’ (financial institutions) trade finance operations.

Indeed, banks must tread carefully in the world of trade finance, and with such little room for error and financial losses, risk management is critical. In many ways, collaboration with FinTechs has become a key part of risk mitigation for banks, with researchers finding that only 1.4 percent of bank respondents said they consider FinTech’s competitive offerings as posing a threat to traditional banks’ position as trade finance providers.

“The discourse around FinTechs is evolving from competition to collaboration,” the International Chamber of Commerce Banking Commission (ICC) concluded.

One of those collaborators is CRiskCo, a credit risk management company that deploys Big Data analytics to provide a business credit score to lenders and trade finance providers. The firm’s President, Erez Saf, recently spoke to PYMNTS about how these FIs can wield powerful technologies to mitigate risk and remain profitable as the industry works to meet that demand gap.

According to Saf, the adoption of technology by trading partners can be a significant aid to both CRiskCo and the FIs with which it works.

“Since the majority of SMBs’ accounting systems moved to cloud-based solutions, such as QuickBooks or Xero, our ability to identify, calculate and apply complex mathematical models on the data improved dramatically,” he recently told PYMNTS. “As the world becomes more digitalized and connected, our abilities will grow, and we expect the data flow of connected transactions will cover many of the industries that have been left out until today.”

SMEs are often some of those left out from access to trade finance, especially as tighter capital controls, risk requirements and regulations force larger banks to pull back from servicing small businesses.

CRiskCo recently announced news of a partnership with Euler Hermes Digital Agency (EHDA), a unit of trade credit insurance company Euler Hermes that focuses on technology and disruption of the trade finance space. CRiskCo is integrating its analytics capabilities into the EHDA platform, aggregating accounting data and deploying machine learning to predict whether a small business borrower may default.

Together, the businesses are going straight to the trading partners to protect a supplier against the risk of non-payment. CRiskCo’s underwriting capabilities have been integrated into EHDA’s Single Invoice Cover solution, which protects businesses against the threat of non-payment on a single bill, with coverage provided on a transaction-by-transaction basis.

Posted on 7wData.be.