How Can Indian Banks Capture a Share of the Global $20 Billion
As the supply chain financing industry is adjusting to a structurally higher interest rate environment, banks are stepping up their efforts by building out evolving working capital financing strategies.
Notably, McKinsey’s Global Payments report, projects that the Global Transaction Banking (GTB) revenue pools in trade finance are expected to reach $20 billion by 2025.
Amidst forecasts of a significant surge in trade finance revenue globally—the work is cut out for Indian banks to pace up and deploy effective strategies to dominate the trade finance market.
The growth of the supply chain financing market is driven by several factors
By 2029, the global supply chain finance market is expected to grow at a CAGR of 8.7% to reach USD 9.4 billion.
Globally, the supply chain financing volume has increased by 7% to reach USD 2,347 billion. While Africa has topped the charts with an impressive 29% growth in volume, Asia has gained a remarkable two-digit growth in supply chain financing volumes.
The surge in supply chain financing volumes reflects a strategic response to the escalating demand for innovative, affordable financial solutions in trade ecosystems. The strong demand for supply chain financing is the result of the convergence of many factors, ranging from:
- Globalisation which has led to diverse and complex supply chains
- An increase in the number of suppliers
- A broadening borrower base of corporates and their network of Micro, Small, and Medium Enterprises (MSMEs)
- Regulatory changes impacting traditional trade
One thing is certain—the ongoing pace of growth and the slew of changes can further transform the supply chain financing space.
The need to prioritise working capital financing
Today, we are witnessing a rising demand for consumer-like, personalised interactions in trade workflows. Add to that, alongside efforts to digitalise the trade finance industry, there is also a growing need for ecosystem collaboration in trade finance.
Banks are integrating working capital into supply chain financing for a resilient trade ecosystem, offering personalised solutions as international trade and financing programs expand in scope. - Mr. Ashutosh Taparia, COO & Global MD for Enterprise Coverage & Trade, CredAble
The integration of working capital financing solutions within the broader framework of supply chain financing is critical to creating a resilient and intelligent trade finance ecosystem.
Given how international trade is currently a market of mammoth proportions and supply chain financing programs are growing in magnitude (ranging anywhere from $10 million to $10 billion), banks are looking to deliver next-level personalisation in working capital financing to enterprises and SME ecosystems.
According to the 'World Supply Chain Finance Report 2024', the percentage of suppliers encountering challenges with expensive or inaccessible financing grew to 27% in 2023, up from 21% in 2022. This rise signals a critical requirement for comprehensive working capital financing options to support suppliers in mitigating these financial challenges.
There is a massive opportunity that is, as of now, untapped in the working capital space, where financial institutions are yet to unlock the benefits of delivering highly configurable working capital financing solutions.
What banks need today is a technological infrastructure that is compliance-friendly and customisable to cater to both provider and end-customer needs and meet the evolving demands of the trade ecosystem.
Additionally, this surge in supply chain financing is also resulting in a pivotal shift towards adopting Banking as a Service (BaaS) solutions, enabling financial institutions to innovate within this landscape while honing in on their core competencies.
Backed by comprehensive BaaS tech stacks, financial institutions are transforming beyond what's traditionally expected of them by leveraging technological advancements to streamline processes and meet the evolving working capital needs of businesses across diverse sectors.
Embracing embedded trade: Enhancing efficiency and integration
Against this backdrop, embedded trade is becoming an increasingly viable solution for financial institutions.
Embedded trade integrates financial services directly into trade ecosystems, promising heightened efficiency by digitising documentation and seamlessly connecting stakeholders.
As a result, embedded trade finance is enabling financial institutions to:
- Meet the trade financing needs of global enterprises and their network of deep-tier suppliers.
- Improve the efficiency of their overall trade financing operations.
- And transition from a manually intensive, high-fixed-cost environment to a more automated, cost-effective financing structure.
Moreover, embedded trade finance streamlines the financing process by enabling banks to offer contextual financing solutions at the point of need.
Embedded trade finance empowers banks to streamline fund transfers through logistics—minimising upfront credit pressures, speeding up working capital turnover, and improving transactional efficiency for businesses. - Mr. Ashutosh Taparia, COO & Global MD for Enterprise Coverage & Trade, CredAble
Banks can leverage embedded trade finance to facilitate fund transfers at various stages of the logistical trade process, thereby reducing upfront credit burdens faced by businesses and enhancing transactional efficiency. This integration optimises supply chain operations, fosters quicker working capital turnover, and supports smoother trade flows.
The adoption of embedded trade is poised to redefine global supply chains
Bundled services in trade, or 'embedded trade', have the potential to bridge the global trade finance gap of $2.5 trillion by aligning the disconnected physical and financial supply chains, digitising documents, and streamlining financing.
The integration of embedded trade enables banks to offer tailored financial solutions that address specific needs within trade cycles. This approach reduces the dependency on traditional, time-consuming financing methods and mitigates the risks associated with fluctuating market conditions. By digitising documentation and automating processes, banks can optimise resource allocation and improve liquidity management for businesses of all sizes.
It facilitates smoother trade flows by ensuring timely access to funds at critical junctures of the supply chain. This capability not only enhances operational agility but also enables businesses—even those in the lower tiers of the supply chain—to seize growth opportunities quickly and respond adeptly to market fluctuations and customer demands.
As embedded trade continues to evolve, its impact on financial inclusion cannot be overstated. By democratising access to finance and reducing barriers to entry, especially for MSMEs—banks can leverage embedded trade solutions to foster more inclusive supply chain networks.
The way ahead
Looking ahead, banks globally are expected to increase their volumes of supply-chain finance assets. The supply chain segment for Indian banks, in particular, is projected to exceed INR 60,000 crore in the coming months.
The future of supply chain finance lies in leveraging tech-enabled working capital financing solutions and building strategic partnerships. Advanced technologies such as blockchain, Artificial Intelligence (AI), and machine learning will continue to enhance transparency, security, and efficiency in financial transactions. In addition to this, collaborations between banks, FinTech firms, and regulatory bodies will accelerate innovation, unlocking significant value that remains untapped in the working capital financing space.
Furthermore, the rapid adoption of embedded trade is driven by a dual imperative—enhancing operational efficiency while meeting the dynamic expectations of modern commerce. In essence, embedded trade represents more than just a technological advancement; it is a paradigm shift towards a more interconnected global economy.
As banks in India continue to embrace these innovations, they are not only redefining their own capabilities but also shaping the future of supply chain finance worldwide.
Think Working Capital… Think CredAble!