Allied Market Research published a report, titled, “Trade Finance Market Size by Product Type (Commercial Letters of Credit (LCs), Standby Letters of Credit (LCs), Guarantees, and Others), Provider (Banks, Trade Finance Houses, and Others), Application (Domestic and International), and End User (Traders, Importers, and Exporters): Global Opportunity Analysis and Industry Forecast, 2021–2030.” According to the report, the global trade finance industry generated $44.09 billion in 2020, and is estimated to reach $90.21 billion by 2030, witnessing a CAGR of 7.4% from 2021 to 2030.
Trade finance is projected to witness a significant growth, due to increased disruption and advances in technology, to enhance digitized supply chain finance in the market. The market is largely fragmented, due to higher involvement of several traders, importers, and exporters globally. In addition, traditional trade is changing the historic favorable letter of credit and promissory note and bill of exchange has become less common and replaced by an increase in open account trade and finance. Moreover, the development of technologies such as Optical Character Recognition (OCR) to read container numbers, Radio Frequency Identification (RFID) and Quick Response (QR) codes to identify and trace shipments, blockchain, and enhancing digitization of trade documents drive the trade finance market growth.
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Covid-19 Scenario
- The Covid-19 pandemic impacted the capacity of banks in emerging countries to provide trade finance service efficiently. Moreover, there have been massive failures by traders in completing payments.
- Many financial institutions such as Bank of America have been focused on trade digitization and innovation for both in-house and in partnership with other fintech firms. The adoption of technologies is expected to increase during the post-pandemic.
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On the basis of service providers, the trade finance market size is segmented into banks, trade finance houses, and others. The banks segment generated the highest revenue in 2020 and is anticipated to continue the same during the forecast period, owing to the fact that banks act as intermediaries in trade finance ecosystem to provide inter-firm trade credits to buyers, sellers, and other parties involved in the trade. Support from banks to firm’s ability to mitigate payment risk by purchasing trade credit insurance boosts the market growth. Furthermore, banks are accelerating trade finance processes by transforming their paper-based methods to more efficient and transparent digitized models, thus becoming the highest service providers in the trade finance market.
On the basis of region, the trade finance market trends is analyzed across North America, Europe, Asia-Pacific, and LAMEA. Asia-Pacific and Europe collectively accounted for higher revenue in the trade finance market share. The Asia-Pacific region dominated the market in terms of revenue in 2020 and is expected to retain its dominance throughout the forecast period, due to rise in demand for trade finance for the security in trading transaction from verticals such as commercial facilities and banks in the region. However, LAMEA is expected to grow at the significant growth rate during the forecast period, due to higher oil production and large-scale exports and services from agency finances.
The coronavirus pandemic has a significant impact on the trade finance industry as many people are struggling with pay cuts, unemployment, and others. All these factors make it difficult for many people to meet with their financial obligation. The fear of traveling and reduction in disposable income of individuals have decreased the demand for export and import activities. Furthermore, to overcome from different challenges, such as increase in the sales during the pandemic and others, trade finance companies have established new developments such as tracking expenses against the revenue status, checking the business model feasibility, identifying the potential impacts on the business, adopting advanced technologies to enhance mobility processes, and providing better user experience. This in turn fosters the growth of the market.
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Key Findings Of The Study
- By product type, the commercial letters of credit segment generated the highest revenue in 2020.
- By provider, the trade finance houses segment is expected to grow at a fastest CAGR in during the forecast period.
- By region, the Asia-Pacific generated the highest revenue in 2020.
The key players profiled in the trade finance market include Asian Development Bank, Bank of America Corporation, BNP Paribas S.A., Citigroup Inc., Euler Hermes Group, HSBC Holdings PLC, JPMorgan Chase & Co, Mitsubishi UFJ Financial Inc., The Royal Bank of Scotland Group plc, and Standard Chartered PLC. These players have adopted various strategies to increase their market penetration and strengthen their position in the industry. This study includes trade finance market trends, analysis, and future estimations to determine the imminent investment pockets
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