Payment Innovations Tackle Trade Finance Gap as Banks Pull Back

The old adage is that banks lend when you don’t need the money.

When capital is hard to come by or when there’s the hint of repayment risk, that’s when the traditional lenders shut the spigots.

In one indication that traditional conduits to financing operations are narrowing, The Wall Street Journal (WSJ) reported Friday (March 24) that there had not been any bond issuances through the week that ended March 17. To be specific, this refers to issuance by companies that are judged to have a low risk of default. This is the first time since 2013 that there were no issuances for that same week.

Earlier in the week, Federal Reserve Chair Jerome Powell noted the bank runs of the past few weeks will “contribute to significant tightening in credit conditions,” per WSJ.

As noted in the Fed’s most recent quarterly report on small business lending, small business commercial and industrial (C&I) lending decreased in the third quarter of 2022. New lending decreased by 22.1% year on year and 14.5% quarter on quarter. At the same time, supply chain disruptions increased loan demand.

The simple economics when supply (the loans) outstrips demand (small businesses seeking those loans) lead to a bit of cash crunch. PYMNTS’ own Main Street surveys, done in the same third quarter as the Fed’s surveys, found that inflation remained among the biggest challenges small- to medium-sized businesses (SMBs) faced coming into 2023. The challenge has hardly abated.

Inflation, tightening credit and an uncertain macro climate all foment pressures that come to bear on accounts receivables processes, where cash flow visibility is most critical, and often lacking. Cash in the coffers means that there’s the ability to run businesses day to day and plan for the future. Working capital is the oil that keeps the corporate machinery humming. Prior to the pandemic, PYMNTS research showed that that U.S. firms were owed as much as $3.1 trillion in the net amount in accounts receivable on any given day. Last year, the International Chamber of Commerce (ICC) found that short-term trade finance has been pressured.

Within trade finance, there are ways of getting the cash on hand needed to keep supply chains flowing, spanning trade credit between buyers, sellers and cash advances.

FinTechs, Platforms and Banks

In recent weeks and months, we’ve seen a spate of firms, forward-thinking financial institutions (FIs) and platforms — sometimes working together — focusing on trade finance and general, tech-enabled working capital improvements. In just a few examples, Santander has announced a B2B buy now, pay later (BNPL) product for multinational corporations.

Developed in collaboration with Allianz Trade and Oslo-based BNPL FinTech Two, the solution will enable companies to offer their business clients a consumer-style BNPL option with near-instant approval. Elsewhere, trade credit insurance, as offered by the Tepfin X platform developed by Hyperion X, allows banks and their brokers to obtain quotes from across the structured credit insurance market, helping insurance buyers secure risk coverage at lower costs.

And in news reported earlier this month, some of the startups receiving investor backing have been focused on B2B payments, and, specifically, access to credit. The efforts are international in scope. Barte has raised 16 million Brazilian real (about $3 million) for its B2B payments platform, which among other things offers SMBs cash flow management and access to credit.

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