Trade Finance

Alternative Data – A Catalyst To Boost Trade Finance

Written by Michel Kilzi

The Credit Insurance industry is small in relative size, 15% coverage of global B2B transactions, compared to the total addressable global B2B trade market of USD 12 trillion. Currently, credit insurance is a very relevant solution, but only for a small number of companies. As such, credit insurance underwriters have access to only a fraction of the world’s B2B data, which is hindering the industry’s ability to grow significantly.

The current business model of Trade Credit Insurers is relying on antiquated data for credit protection thus not being sustainable in the era of the 4th industrial revolution. To stay competitive and be able to grow, these stakeholders will require a constant flow of data that is updated regularly to support enhanced credit decisions. 

Access to quality big data, that covers the rich spectrum of global trade in terms of transactional data and alternative data, creates an immense opportunity for the credit insurance and export finance industry players to grow their respective industries in size and generate more insurance and financing opportunities to support cross-border trade.

Alternative Data in Trade Finance

Alternative data in trade finance, is a collection of information about a particular company’s trade insights. This data is generated through different sources outside the conventional data gathering process and can provide unique and timely visibility into its trade related risks.

The more granular and contextual the data is, the more it can make the difference in taking successful credit decisions to enhance the trade credit insurance industry as a whole.

As supply chains are designed with the buyers and suppliers in mind, they are a source of alternative data to visualize, define, and refine the underlining trade process. Data generated from supply chains constitute genuine data captured at the source of B2B trading.

Another data source can be created through the incentivization of corporates to share insights of their trade strategy, risk management policy and related contingency plans, as well as a history of their different loan payments and utility bills payments, that will ensure further validation on the corporates creditworthiness, a crucial point for Trade Credit underwriters and financial institutions alike.

A standout data source will come from Trade Finance marketplaces and platforms such as Fineon Exchange. This will consist of transactional triggers, chatbots and artificial intelligence generated data, that will shift into a feedback loop, enriching the machine learning process and provide live program triggers to help credit insurers and financial institutions to proactively anticipate claims, defaults, and delinquencies in payment.

Such access to alternative data will facilitate the usage of relevant information to help all stakeholders in the trade finance space by enhancing their decision-making process, enabling credit insurers to provide enhanced trace credit insurance policies based on new and updated relevant data. At the same time, it will allow funders to better asses credit risks and provide increased lines of credit at favorable rates.

Alternative data will help increase the stakeholders market share, as it will allow them to reach new markets and clients that would have otherwise been inaccessible and probably discarded.

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