Transaction Banking
Trade, Treasury & Cash
Trade and supply chain financing as an activity is complex, in part due to the multiple parties involved, each with their own paperwork and regulations with which they must comply.
Coupled with the variability of currency exchange rates, the need to comprehensively screen transactions to comply with anti-money laundering (AML), and know-your-customer (KYC) requirements, this end-to-end financial transaction has become a source of higher operating costs and multiple pain points for the trade finance intermediary.
As such, financial institutions are constantly looking for solutions in trade, treasury and cash management, to improve their margins on trade finance lending, while achieving portfolio optimisation in terms of trade asset exposures.
As a financial activity estimated at US$ 16 trillion annually, our view is that bank led trade lending is here to stay. We therefore maintain an investment focus on innovation and opportunities in this space, including solutions which mitigate fraud and ease regulatory compliance.
What We Look Out For
The delta may be in innovation around services associated with trade lending, enhanced by technology, marketplaces, and innovation.
In this respect, GTR Ventures seeks to invest in founders and tradetechs who demonstrate a solid understanding of trade and transaction banking processes, who are able to cost effectively bridge the gap between treasury and trade for clients, and who are willing to partner with financial institutions to solve traditional trade lending pain points, including helping them achieve distribution efficiencies in their portfolio and risk management of trade.
Rise of Non-Bank Lending
Certain regulations, like Basel III, have increased banks’ cost of capital for trade and supply chain lending, resulting in shrinking appetites and balance sheets for trade finance assets.
In turn, this has given rise to of trade and supply-chain lending from non-banks such as trade finance funds and digital trade lending platforms. These structures allow for private-accredited investor groups, family offices and hedge funds to partake in the returns from trade finance. According to a International Chamber of Commerce report from 2016, the default rate on trade finance instruments such as export letters of credit (LCs), can be as low as 0.04% (see below). In addition, due to the short-term nature of trade financing cycles, investments into trade finance are fairly liquid.
We believe trade finance lending can be considered as an alternative asset class for investors looking for portfolio optimisation and low volatility returns akin to investment grade bonds.
Besides specialist trade finance funds and trade lending platforms, we see corporates and marketplaces already involved in some form of trade lending activity. Amazon and Alibaba for example, have extended financing to their merchants; while Maersk as a shipping line, has set up a separate unit to extend trade finance to its customers.
Get in Touch
Looking for a way to enhance your revenue and grow your business? Look no further than GTR Venture, the premier financial and supply chain partner for SMEs. Our innovative approach to funding, family office investment, and support for the physical ecosystem of trade (including shipping lines, airlines, freight forwarders, and logistics companies) makes us the ideal partner for any business looking to expand their operations, streamline their supply chain, and increase their profits.