Every now and again a new, in vogue, concept or trend emerges which is often encapsulated in a new catch phrase or word. “Fintech” is a latest one, particularly in the banking and financial services sector. In fact, in the Fortune Magazine of 1 July 2016 there is an article about a Citibank Fintech Division which provides a comprehensive and convincing case for all banks to address the increasing threat to their businesses from agile, comprehensive and lean Fintech offerings emerging over the web. Of course Fintech refers to Financial Technology and it consists of a growing number of financial services offerings over the web which disintermediate the banks and are forecast to result in the loss of one third of traditional banking jobs over the next three years.
In the import trade activity there are two streams of flow: One being the door-to-door logistics movement of product imported and other being the end-to-end money flows of product (imported) being paid for. The end-to-end money flow leg has Fintech potential that may not necessarily disintermediate the banks but will certainly play a financially dynamic and beneficial role to importers in managing import trade over the web.
The end-to-end money flow pertaining to import trade has several steps or stages:
- foreign exchange conversion rates to convert the foreign currency cost of buying from foreign suppliers into the local currency of the importer
- purchasing and managing the forward cover, forward exchange contracts (FEC) for the confirmed import orders
- trade finance facility access to fund payment of the foreign suppliers until the importer has imported and sold the product
- utilisation and management of both the aforementioned FEC’s and trade finance
- processing and managing the end-to-end import payments on an automated basis.
A best practice, integrated import trade management system over the web has the ability to provide Fintech benefits to the importers of product. These benefits are in the following leading edge system driven services:
- Enabling the importer to carry out automated, real time, agile cost per unit assessments of product planned for import without having to contact a bank for the foreign exchange rates – which slows down the process
- Enabling automated booking of forward cover and locking down of foreign exchange rates used for costing products for import
- Accessing and applying for trade finance facilities over the web: In the Fintech world such trade finance may not necessarily come from a bank but rather from investors funding a risk ranked pool of import trade flows not requiring the same level of collateral and security measures – measures which again slow the process where traditional security cover, procedures and processes are required
- Providing automated straight through payment processing in a dynamic technological world of payments, released off the base of pre and post shipment cost variances within acceptable tolerances
- The best practice emphasis of managing import trade transactions strictly using accurate, real time financial impacts on cost per unit of product being imported. This can be categorised as Fintech by using integrated technology with smart import functionality to uniquely provide financial impacts on cost per unit of product
Fintech offerings tend to use technology in such a way that they provide unique and innovative ways of being more effective than a traditional process or system. They service a need which was previously not even recognised as a need until the technology proved the new way. Import trade transactions have significant scope for Fintech type benefits to clients if serviced in an elevated way using an integrated technology platform.
There are effectively three main ways Fintech impacts and benefits users:
- Democratisation: Fintech makes world class services available to small and medium size users which would normally only be available to large clients. This levels the playing field. Online platforms allow non-accredited investors and non-accredited clients to access opportunities not previously available to them
- Disintermediation of traditional business models: This reduces reliance on traditional providers of financial services. Fintech eliminates the middle man by providing access to financial transactions over the web. This shakes up the traditional finance world. Peer-to-peer lending removes traditional financial institutions from the process by providing direct lending and borrowing channels. The effect is that those with money and those needing money are being connected more efficiently than ever before. The Fintech marketplace results in lower rates of finance for borrowers and provides investors with a higher source of income. The interest rates are often driven by calculated risk ranked returns. It eliminates the administration heavy raising of finance from a bank.
- Customer experience: Web based technology services is increasingly expected to be extremely user-friendly. Banking services are being built around interactive, mobile-friendly interfaces which emphasise the customer experience. Fintech is based on extreme user friendly convenience and performance in delivery of innovative solutions to its clients
These benefits are connected to the growth of the service-led marketplace. Companies such as Uber and Airbnb have disrupted their industries and have set new standards for trust and visibility, efficiency and connectivity between users. These peer-to-peer marketplaces have shown that doing business over the web has exponential growth potential off the base of the ability to provide significant new value and benefits though connectivity and communication.