According to a new report published by Allied Market Research, titled, " Global Trade Finance Market by Product Type, Service Providers, and End User: Global Opportunity Analysis and Industry Forecast, 2019-2026," the global trade finance market size was valued at $39,714.2 million in 2018, and is projected to reach $56,065.7 million by 2026, growing at a CAGR of 3.79% from 2019 to 2026.
Trade finance deals with financial activities related to domestic and international trade. It is the financing of international trade flows and acts as an intermediary between importers and exporters to mitigate the risks involved in transactions and enhance working capital efficiency in businesses. Trade finance is used by buyers, sellers, manufactures, importers, and exporters to ease financing activities; it deals with the way cash, credit, investments, and other assets are used for trade. It includes issuing letters of credit (LCs), receivables and invoice finance, credit agency, export finance, bank guarantees, insurance, and others.
Rise in competition and new trade agreements; and improved inventory management by various companies propel the market growth. In addition, 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, enhancing digitization of trade documents also drives the trade finance market growth. However, lack of focus of trade financing for SMEs, insufficient risk valuation capabilities, limited legal certainty, and operational inefficiencies restrain the growth of the trade financing market. Advancements in technology, switching from traditional banking methods for documentation to ease paperwork, and efficient enhancement in trade finance industry provide opportunities for the market.
On the basis of product type, the export & agency finance segment dominated the trade finance market in 2018. Credit agencies are providing finances to foreign buyers at a large scale, supporting highly structured financing solutions, which in-turn enhances exporters risk capacity. In addition, export & agency finance allows domestic companies to export goods and services to buyers around the world with a certain level of security, becoming a major trade finance market trends in the market. Moreover, international agency financing products offer guarantees to cover commercial bank credits, direct funding, and mitigates political risks.
Depending on service providers, the banks segment generated the highest revenue in 2018 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.
Key Findings of the Trade Finance Market:
- The export & agency finance segment is expected to be the fastest growing segment in the trade finance market forecast period, in terms of value.
- The U.S. dominated the North America trade finance market in 2018 and is projected to grow at a CAGR of 3.6%, from 2019 to 2026.
- In terms of revenue, the importers segment was the highest contributor in 2018.
LAMEA and North America collectively accounted for higher revenue in the market. LAMEA held largest trade finance market share, in terms of revenue in 2018, and is expected to retain its dominance throughout the forecast period, due to higher oil production and large-scale exports and services from finance agencies. In addition, the U.S. export and agency finance enhances export opportunities, by investing in large project planning activities and creating sustainable infrastructure leading to economic growth in the region. The key players operating in the global trade finance market include as Asian Development Bank (ADB), Bank of America, BNP Paribas, Citigroup Inc., Euler Hermes, HSBC Holdings plc, JPMorgan Chase & Co, Mitsubishi UFJ Financial Group, Inc., Royal Bank of Scotland, and Standard Chartered Bank. Other players operating in the market are Industrial and Commercial Bank of China Limited, Export-Import Bank of India, Mizuho Financial Group, Inc., Commerzbank AG, and African Export–Import Bank.