Like the rest of the world, the international trade industry has witnessed considerable volatility in recent years. COVID-19, geopolitical strife and the Russia-Ukraine war have all posed different threats to the sector, requiring trade finance and credit insurance participants to innovate and adapt to help keep trade flowing.

The global volatility and disruptions of recent years have led to an increased focus on the trade credit insurance market. In order to adapt to these volatile times, the trade credit insurance industry, like many others, has slowly embraced digitisation.

However, this is a challenging transition, and there are numerous problems with sector-wide adoption. To learn more about how the trade credit industry is building further resilience, Trade Finance Global’s (TFG) Deepesh Patel spoke with Marc Meyer, SVP subject matter expert, Tinubu at ExCred International’s London conference. 

Changes in the trade credit industry

COVID-19 was the largest systematic crisis for the global economy since the 2008 Global Financial Crisis (GFC). Though the world attempted to build a level of resiliency to financial-related downturns after the GFC, the pandemic represented a black swan event that threatened to undermine all of the progress.

The disruptions caused by COVID-19 made the credit insurance industry rethink their strategy, as the entire ecosystem and players have changed. Meyer said, “There was a pause for most of the [trade credit insurance] industry because the government entered the market, supporting the insurers, the customers, the policyholders and the corporates.”

New governmental backing for trade credit insurers allowed them to extend more insurance to companies, specifically SMEs. However, in 2023, there are still problems that concern the trade credit insurance industry. Meyer stated that expectations on insurance claims and risks are still incredibly volatile, the Russia-Ukraine war surpassed the one-year mark, and there is an ever-looming threat of a global recession.

The industry response? Meyer said the insurance industry realised they “had to be ready to face and to cope with a new crisis, so they invested [in digitisation].” 

However, one of the biggest problems with this transition is that only a few banks were prepared for this transition. Private credit insurers and Export Credit Agencies (ECAs) are all currently in the process of adopting these changes and attempting to implement them into internal strategies.

During this time, Tinubu set out to help their clients navigate the troubled waters. Tinubu was actively maintaining and adapting their system to meet different needs and provided a service activity to better understand risk.

Meyer said, “We did that with urgency. We were able to help them upload some new limit decisions, we were able to help them fine-tune some of their products.”

Focusing on a more long-term view, Tinubu moved to help new entrants into the market. Meyer noted that trade credit insurance could be time-consuming and overwhelming for many people to handle, “Credit insurance, especially in the short term, is management on a daily basis. You have contact with the insurer every day for the limits, for the checks to be received, and for the claims. That’s very heavy management for the policyholder.”

Many companies, specifically SMEs, are unable to dedicate this amount of time and effort to credit insurance. This is how digitisation can help with the process, and where Tinubu is focusing their effort. Meyer said, “We work on this to support the design and implement the design of this new product in the system.”

Insurtech – working alone won’t work

In business, there is a fine line between partnerships and collaborations versus propping up a potential competitor. However, Tinubu prefers to play the role of a supporting company, as they believe no company can forge their own path in the face of new technologies and a volatile world.

Meyer said, “Partnership is needed because it’s a high technology, high investment, and like every technique, we will need a standardisation or a group of major stakeholders to push the project.”

Creating an interoperable digitised system is going to require collaboration from everyone in the sector. Worrying about assisting a potential competitor will only hinder growth for all parties involved. But it is easier said than done.

Meyer pointed out, “It is still DIY most of the time, and the industry realisation of this platform is a long road. Everybody will work on it, nobody will be able to do it on their own.”

The DIY environment behind digital interoperability is not going to be an issue that is fixed anytime soon, but the industry has to start somewhere. The key is educating enough actors to create a structure to move forward.

Trade credit insurance is an old, long-standing industry, and many of the mechanics behind the offerings have not changed. Meyer said, “What has changed is all the techniques and tools around the portals, the communication with the customer, with the broker and the automation of the processes.”

As more actors learn about the new processes and the new strategies, the industry will have to lobby for digital techniques to be taken seriously. Meyer said, “They will have to lobby and to educate. That’s going to be a very long process, but hopefully, the result is out there.”

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In the last 25 years, trade and its financing have increasingly come to rely on the internet and new tools such as connectors, digital payments, and cybersecurity. Let’s take a look back on this digital shift marked by two major phases.

The first period of change began in the mid-1990s with the advent of the internet and the boom of “e-market” platforms, providing trade associations with the opportunity to strengthen and negotiate trading terms and conditions on behalf of their members and associates. 

The second, more global phase began a decade ago thanks to the mass distribution of Cloud applications supporting transactions across all industry sectors from the order and invoicing phases (supply chain) to insurance and financing. As a result, in recent years we have witnessed the expansion of numerous platforms dedicated to trade and trade finance, covering needs across the entire supply chain and often extended to credit information, insurance and financing.

In the late 1990s, in the major OECD countries, several industry sectors tried to modernize and digitalize (before this became a buzzword) their trading organization.

The preferred term was the “e-market” platform, profiting from the rapid development of the internet to provide real-time access and to share information at a reduced cost. Some industries transferred their “brick and mortar” collaborative organisation and processes onto the web.

Professional and trade associations set up trading exchange platforms in which members and associates were able to benefit from shared information regarding the credit rating of both sellers and buyers, as well as third-party risk. Examples of some of the most advanced sectors in this area are Haulage, Timber, Fishing, and IT hardware. This sharing of information was enabled by structured data collection (thanks to XML and structured data capacities), rating, grading, and scoring processes, and in some cases almost seamless access to trade credit insurance and/or factoring and financing facilities. Trade credit insurers in the late 1990s were not comfortable with this new technology, so when the dot-com bubble burst, they abandoned R&D efforts in this area.

Since the start of the millennium, innovative and disruptive technologies (such as Cloud applications, digital payments, and e-commerce platforms) have been invading our daily lives and we’ve seen the trend of industry vertical digitalization occur. As a result, banks, insurance companies, and information providers are now highly digitalized. It is only natural that this had a knock-on effect on trade which has undergone a digital transformation.

Today, thanks to improved interface tools (APIs), collaborative work and tasks are seamless and limitless in terms of the number of stakeholders and volume of actions on a single transaction. Blockchain (or similar techniques still to be defined and standardized) provides transparency and security for complex and long-term transactions. Data Analytics and AI make key skills previously reserved for IT professionals are accessible to all.

Electronic trading is developing fast, even in emerging countries (one of the most powerful tools has been the mobile phone and banking services which have been developed rapidly in locations with poor or no internet connection). This global trend triggers the need for improved security, transparency, and efficient access to financing.

Nowadays, many platforms are employing cutting-edge disruptive tools and functionalities which address all needs to guarantee reliable, efficient, and profitable management of the supply chain and transaction security and financing. If we examine the spectrum of services available on the major platforms, we see a similar objective and rationale: to provide the best quality information on buyers and sellers, efficiently manage the ledger and supply chain, and provide the most profitable transaction protection and financing to boost performance.

Thanks to an improved interface and seamless user experience, sellers and buyers can benefit from avant-garde solutions at a reasonable cost. The increasing popularisation of innovative technology boosts the projects of major collaborative ventures. All banks and insurers now have labs and R&D departments working around the clock to be part of this global evolution. The potential market is appealing as trade needs are equivalent around the world and all transactions and stakeholders are potential new customers for these innovative solutions.

Today, the big challenge is a classic one: how to standardize regulations, processes, and documentation. Spending and resources are not limitless, even if funding for FinTech was at a record high in 2019. According to a KPMG report, total funding reached $135.7 billion. 2020 has been impacted by Covid but the trend should return to normal in 2021.

Insurers and banks cannot continue to multiply their participation and membership to associations, venture projects, and the like. A better allocation of resources will mean focusing on fewer projects more closely to be more efficient for their customers and their own businesses. For the time being, the driving force is initiated by the final customer(s) or group of customers; they are pushing their chosen partners and platforms to their banks and insurers. 

Perhaps it will soon be time, in the post-pandemic period, for banks, factors, and trade credit insurers to get together with technology providers and try to set minimum standards for the emergence of innovative and disruptive technology tools (such as Blockchain and the systematic use of APIs) for the benefit of all stakeholders. For the past year, economists have been predicting a reshuffling of international trade, in part due to local or regional relocations, and have been forecasting a need for more effective supply chain management tools and better access to financing for SMEs. If this proves to be the case, this changed landscape will indeed require solutions and tools to implement this renewed trade transactions ecosystem.

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