Trade Finance Emerging as a Hub of Innovation and Disruptive Change

Once considered a staid business, trade finance could be emerging as a hub of innovation and disruptive change, according to Greenwich Associates LLC.

The biggest driver of change in trade finance is the shift in strategy on the part of the world’s largest banks. Although the list of 2017 Greenwich Leaders in Large Corporate Trade Finance is still composed of global banks—like BNP Paribas in Europe, Bank of America Merrill Lynch and J.P. Morgan in the United States, and HSBC in Asia—their share of relationships (market penetration) have collectively decreased over the past six years.

While the most seismic of these shifts played out over the past several years, retrenchment by big banks is still opening up new opportunities for other providers. Greenwich Associates projects that among large companies using trade finance, approximately 45% of companies in the United States, about half of large European companies and approximately 80% of Asian companies will shift business among trade finance providers in 2018.

“This “money in motion” is providing fuel to a range of aggressive competitors, including both established, traditional banks and emerging nonbank firms,” says Greenwich Associates Managing Director Don Raftery.

Tech Disruption

Trade finance is the most paper-based and manual function in the financial services industry. “In terms of sheer lack of automation, trade finance can actually be considered an outlier,” says Greenwich Associates consultant Gaurav Arora. “That makes it a market ripe for disruption.”

With many challenges yet to be overcome, the financial services and tech sectors are committing vast resources to apply distributed ledger technology (DLT) to corporate finance.  The transactional nature of trade finance makes it perhaps the best and easiest fit for this new technology and inevitable that blockchain and DLT will eventually have a material impact on the business.

2017 Greenwich Leaders in Global Large Corporate Trade Finance

In Europe, BNP Paribas maintains the position of clear-cut leader in trade finance. Thirty-six percent of large European companies use BNP Paribas for trade finance, far outpacing the 28% of companies using No. 2-ranked Deutsche Bank. The 2017 Greenwich Quality Leader in Overall European Large Corporate Trade Finance is UniCredit.

J.P. Morgan and Bank of America Merrill Lynch are each used for trade finance by well over 40% of large U.S. companies, making these two firms the clear leaders in the category. Four banks share the title of 2017 Greenwich Leader in Overall U.S. Trade Finance Quality Leader in: Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, J.P. Morgan, and Wells Fargo.

Across Asia, the top four spots in terms of trade finance market penetration are held by global banks with HSBC at 38%, Standard Chartered at 33% and BNP Paribas and Citi, which are statistically tied for third with 28% and 26% respectively.

But at 23%, DBS Bank ranks fifth and is closing in on the global leaders. BNP Paribas is the 2017 Greenwich Leader in Overall Asian Large Corporate Trade Finance Quality.