Digital Asset Market
In cryptocurrency and FinTech, a digital asset is the digital representation of something of value. Typically, this value is tokenised, and the resulting tokens can represent either full or fractional ownership verified and recorded on a distributed ledger. A digital asset can include cryptocurrencies or represent a real-world asset stored on the blockchain as a token that defines its value, identified by its unique identifier.
Stablecoins are a critical part of DeFi and the crypto economy. They strengthen the bridge between traditional finance and crypto markets since activities like borrowing, lending, and derivatives need a stable and reliable base value. Stablecoins are typically more efficient for global payments and transfers than traditional finance. While the average international remittance fee is about 6% of the transfer value and could take several days to process, operations with stablecoins take minutes. As adoption increases, there is an increasing propensity to use stablecoins as payment, a key foundation of traditional financial systems. Stablecoins have the potential to be an alternative means of payment for businesses, and their adoption could be rapid due to network effects and increasing crypto awareness. While there are risks, they also aspire to help traders access global financial services, positively impacting financial inclusion, particularly in emerging markets.
FinTech companies have become important new players in the fast-changing trade finance market. They offer services similar to traditional banking activities but are currently not subject to bank regulations, transparency and consumer protection requirements, or capital requirements.
FinTech-enabled services include peer-to-peer money transfers, lending services, online payments, and mobile payments. Financial organisations can develop solutions in-house, collaborate with FinTech solution providers, or acquire them. FinTech companies provide financial support to SMEs, especially in developing countries, specialising in risk assessment and evaluation models not typically serviced by banks. Generally, FinTech companies operating in alternative trade finance focus on cost-reduction initiatives for mid-tier and non-listed companies. At the same time, large financial institutions in this market only provide services to select customers and large multinational companies.
FinTech startups raised $32.4 billion globally in Q1 2022. There are now 473 FinTech unicorns worldwide. Forty were added in Q1 2022, 8 less than the quarterly average last year, but still at a very high pace. It is expected that by 2024, the number of active users of online banking services will increase to 2.5 billion. The FinTech space is expected to reach $179 billion by the end of 2022.
Supply Chain Finance (SCF) is a set of technology-enabled business and financial processes that provides flexible payment options for buyers and their suppliers at lower financing costs. The parties involved in the SCF process include logistics, supply chain management, distribution collaboration and financial institutions that collectively create value. Supply chain financing is a financial management solution that benefits suppliers and buyers by increasing working capital. As a result, suppliers get immediate cash, and buyers get extended payment terms.
Trade finance technology (TradeTech) refers to technology, innovation, and software to support and digitally transform the trade finance industry. TradeTech includes the technology stacks, software, and innovations that aim to enhance traditional financial methods in international trade to improve the availability of trade finance and related services. It seeks to reduce business transaction costs, lower compliance costs, and increase efficiency and transparency for firms, regulators, and consumers. The adoption of TradeTech results in new business models, applications, processes, and products with an associated material effect on trade finance markets and institutions.
The term “TradeTech” was officially established and recognised by the World Economic Forum in a 2018 whitepaper, highlighting the importance of technologies such as the Internet of Things (loT), blockchain, and artificial intelligence in facilitating international trade and supporting trade finance.
Increased enterprise focus on digitisation and the rising adoption of cloud-based solutions deployment are key driving factors behind the global trade finance software sector. Specifically, cloud computing provides an approach to strengthening capacity or adding competencies to existing platforms without investing in new infrastructure, licensing new software, or training new personnel. Numerous enterprises in various regions are adopting cloud-based trade finance software due to its reliability and low cost. As a result, the trade finance software market is presently led by the cloud segment, which possesses the highest market share.
The stupendously growing number of SMEs worldwide and their demand for trade finance solutions are anticipated to further drive the trade finance software market. It is expected to grow from $1.57 billion in 2021 to $2.92 billion by 2027, with a compound annual growth rate (CAGR) of 10.3% during the 2020-2027 forecast period.