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The Future of Risk Management: TradeHub

Future of Trade Finance Risk Management

By: LiquidX

Risk management is an essential leadership principle that helps identify and mitigate potential threats before they can derail or hinder a business’s success. It helps to control the structure and nature of projects, and it fundamentally affects the way decisions are made.

Historically, risk management in trade finance has been a complex and time-consuming process, its efficiency challenged by banks having to manually track and manage the many documents and data associated with a trade finance transaction. This has made it difficult for financial institutions to identify and assess risks, as well as resolve disputes.

The future of risk management is becoming characterized by several trends that are making it more efficient, effective, and collaborative, and in turn, helping organizations to protect themselves from the risks that they face. At the top of the list is digitization, i.e. the use of digital technologies to improve the identification, assessment, and mitigation of risks. Today, advanced technology provides solutions and systems to reduce the probability and impact of risks, while increasing opportunities and benefits. In fact, a McKinsey report noted that 70% of banks have digital risk prominently on the radar.

What are some of the benefits of digitization in risk management?

Trade finance is a complex and, at times, complicated environment that demands a lot of manual effort. Industry fragmentation and the many different players involved in singular transactions can make efficiently tracking and sharing data difficult. As such, there is growing demand in the industry for standardized data in a common format that can be easily shared and interpreted by different systems.

While Excel macros can be used to help overcome these challenges by automating tasks like invoice generation, shipment tracking and payment management, the process itself remains largely manual, cumbersome and time-consuming. Invoice generation, for example, can be a particularly complex and long process, with a need for accurate data (where a lack thereof leads to issues with payments) and compliance (failure to comply with regulations can lead to payment delays and rejection). Here, automation is the clear pathway to streamlining overwrought manual processes prone to data discrepancy, especially for businesses that generate a large number of invoices.

Digitization tools can be used to simplify cumbersome processes, maximize potential, and make better business possible. In its ability to ingest, structure, organize, and normalize data, digitization allows for businesses to gain insights from their data that they would not have been able to see before.

As more and more businesses adopt digitization, the industry will see increased benefits, such as:

  • Efficiency and productivity gains: Digitization helps to automate and streamline processes, leading to cost savings and increased productivity. A bank, for example, could use digitization to automate its KYC process, which could reduce the time it takes to onboard a new customer from one week to one day.
  • Enhanced risk effectiveness: Improved accuracy and timeliness of risk assessments ultimately lead to better decision-making. In this sense, a financial services company could use digitization to improve its fraud detection capabilities, which could help to reduce losses.
  • Revenue gains: An improved, more seamless customer experience can lead to increased sales. A mortgage lender, for example, could use digitization to streamline its mortgage application process, which could make it easier for customers to get a loan.

TradeHub is revolutionizing the way trade finance is conducted.

LiquidX’s TradeHub is the first complete, platform-agnostic, real-time middle office digital solution for all positions and transactions. By digitizing trade finance transactions and providing a single, immutable record of all data, Tradehub makes it possible for banks to track and manage risk in real time, amplifying the speed at which risks can be identified and assessed, and enabling easier resolution of disputes. Additionally, by automating and gathering trade information in one central place, TradeHub creates a more transparent and efficient market for all participants. This transparency helps to build trust between trading partners while making it easier to identify and mitigate risks.

For banks, TradeHub eliminates the need to use multiple, disparate systems to manage trade finance transactions, driving better business through digitization tech that fuels efficiency. This saves financial institutions time and money – with a savings of up to 50% – and reduces the risk of errors. TradeHub provides a single view of all trade finance activities between banks and their customers, giving them greater control and visibility over transactions and seamless achievement of higher operating margins.

TradeHub eliminates the complicated and disorganized internal booking of transactions, tracking, and reporting. It allows for an entire book of business to live on one screen that is consistently updated in real-time, providing a comprehensive, holistic snapshot of credit and risk limits without the need to lift a finger. TradeHub allows for banks to leverage:

  • Current and forecasted line utilization, which helps to track credit usage accurately and prevent overextension.
  • Upcoming payment schedules for all trade finance transactions, allowing for payment management and the avoidance of late fees.
  • Funding obligations, which allow for cash flow planning and ensuring obligations are met.

With TradeHub, financial institutions can track data at both granular and macro levels thanks to this complete picture of data, which ultimately helps to inform better business decisions.

As the world becomes increasingly interconnected, Trade Hub is well-positioned to become the standard for trade finance. By creating a more efficient, transparent, and liquid market, TradeHub is helping to make trade finance more accessible and affordable for businesses of all sizes.

To learn more about LiquidX’s industry-leading TradeHub software, request a demo.