What is TradeTech?

TradeTech refers to the use of advanced technology within any aspect of international trade. While the term could be used to refer to any number of digital technologies, it is usually used in reference to things like blockchain, artificial intelligence (AI), cloud computing, internet of things (IoT), or application programming interface (API).

While international trade is a notoriously paper-based industry, TradeTech is starting to change this, and the trade digitalisation space is expected to grow quickly, with the ICC and WTO estimating that it could reach $3-5 billion by 2030.

Why TradeTech matters

TradeTech is immensely important today and is only going to increase in importance in the years to come.

For trade professionals, it promises to bring enhanced efficiency and automation, with processing times that used to take 5-10+ days when using paper documents reduced to hours or even minutes. It can also help to cut back on manual documentation errors, as a lot of the error-prone human touch points can be automated. Then there is the security aspect. The enhanced transparency and algorithmic detection capabilities that digitalisation can bring are expected to significantly reduce fraud rates (which currently account for 1-2% of global trade transactions, according to the ICC). A well-configured AI is just much better suited to detect anomalies in an ocean of data than even the best-trained human.

In the treasury and payments spaces, trade digitalisation can help improve cash flow management and create more reliable transactions. On the cash flow management side, this is because TradeTech will lead to greater availability of real-time data, which will provide better insights and help to reduce cash forecasting errors. Digital cross-border payment options can also help cut settlement times from 3-5 days down to just a few minutes.

There are also broader economic benefits. Since TradeTech has the potential to help reduce transaction costs and times in international trade, it opens financial institutions up to extending financing to many of the smaller ticket clients and transactions that simply would not have been worth their time to serve before. This will help to reduce the $2 trillion trade finance gap and promote global SME financial inclusion.

Core technologies in TradeTech

TradeTech can be a bit of a catchall term, but there are certainly some technologies that are more prevalent than others. We will briefly explore these here.

Artificial intelligence (AI) and machine learning (ML)

Artificial intelligence has taken the world by storm. Many of us turn to generative AI solutions to help with everything from researching a new idea for work to deciding what to make for dinner with the ramshackle list of supplies we have on hand.

In the international trade, treasury, and payments space, some of the principal use cases for artificial intelligence are fraud detection, predictive analytics, and document verification. In numbers, AI-based fraud detection has been shown to improve accuracy by upwards of 85-90%, and banks using AI in their document-checking processes reduced the need for manual checks by up to 70%.

Cloud computing

While transitioning to the cloud may seem like old news these days, it is still a major technological milestone that a lot of firms, even some large ones, have yet to fully realise. Cloud infrastructure lays the foundation for the gamut of TradeTech benefits as it provides scalable, flexible, and cost-effective data management solutions. 

In trade finance, cloud-based systems can help to reduce IT costs by up to 40%, and more than two thirds of financial institutions are still planning for further cloud adoption in the next few years.

API integration and open banking

Another core technology that is being leveraged in trade, treasury, and payments is API (application programming interface). APIs allow different software applications to communicate with each other and share data and can often help to reduce operational costs by 15-30 per cent. 

Open banking is a framework that (using APIs) allows consumers to share their financial data with third-party applications and services (often fintechs). This openness allows customers to personalise their financial stack rather than just being limited to the core offerings that their bank provides.

Applications and use cases

There are countless applications for the use of technology in the trade space, and the number continues to grow as technology improves and competition drives more efficiency in the industry.

We will explore each of these in more detail throughout this hub, but to begin with a brief outline, some key areas where TradeTech is playing a role include:

Supply chain finance (SCF): TradeTech can help facilitate SCF programs and improve the efficiency of cash flows throughout a supply chain.

Trade finance digitalisation: the digitising of trade documents (such as the bill of lading) and related data can improve efficiencies within the industry and provide transparency with real-time visibility.

Cross-border payments: improvements in payment technologies can drive down transaction times and costs. It can also create new avenues for payments (for example, digital currencies) that can help diversify payment methods.

Compliance and risk management: digital technologies have been touted to reduce manual KYC, AML, and other compliance review processing times by up to 80%.

TradeTech Challenges

With all of these benefits and promises of increased efficiency, it can cause wonder into why TradeTech isn’t more ubiquitous around the industry. It is because, despite the promise, there are still a lot of challenges facing the space.

The first comes on the regulatory front. While there has been a considerable improvement over the past few years, the regulatory environment for digital trade documents is still not as welcoming as it needs to be. Without a firm legislative foundation in all jurisdictions for a transaction, market participants will be hesitant to turn to a digital alternative as it may not hold up legally in the event of a dispute.

Another concern has to do with cybersecurity and data privacy. Digital offerings produce immense amounts of consumer data and introduce new cyber risks. Managing these risks and addressing data privacy concerns are necessary for digitalisation.

On the industry side, standardisation and interoperability still stand in the way, although, again, improvements are being made in this realm. Without standardised data frameworks and processes across the industry, it can be difficult for different systems to work together and achieve the true network effect benefits of digitalisation at scale.

Of course, especially for many smaller firms, cost remains an issue. Investing in new technological systems and processes can be expensive. For larger institutions, there is also the need to replace secure and functional, albeit slow and cumbersome, legacy infrastructure.