10 Trends Shaping B2B Trade in 2024

As we step into 2024, Banks, Financial Institutions, Enterprises of all kinds as well as Small Businesses are trying to navigate the global headwinds in Trade. Erosion of geographic boundaries yet the existence of geopolitical conditions along with rapid digitization of trade concerning cash management, credit, commerce, and compliance have created interesting opportunities for all to shape the future of B2B Trade systematically.  Join us to learn about these seismic shifts in the world of trade finance that will define the way we manage the supply chain & and finance the trade in the year to come.

1. Digitization of Cross -Border Trade by adopting EBL MLETR’s Role

Global business witnesses a transformative shift with the advancing adoption of Electronic Bills of Lading (eBLs), ushering in efficiency and cost savings in international B2B trade. The United Nations’ Model Law on Electronic Transferable Records (MLETR) provides a uniform regulatory approach, contributing to the digitization trend and unlocking economic growth. As these initiatives gain momentum, the future of trade promises increased efficiency, resilience, and accessibility on a global scale.

2. OCEN Framework and Financial Data Access Evolution

The Open Credit Enablement Network (OCEN) represents a pivotal evolution in data access for financial transactions. Though the framework’s inception dates to 2019, progress has been measured. Currently facilitating access to bank account data, the real transformative potential lies in utilizing this data for personal loans and unsecured consumer loans. Expectations are high for its role in SME unsecured financing, where diverse data points are crucial. Challenges persist, particularly in gaining access to GST data, but OCEN leaders actively engage with the stakeholders for enhanced data availability and enhance B2B trade. There was incremental success with the integration of GST data, in mid 2023, allowing for more comprehensive profiling of SMEs. However, further significant strides are needed towards achieving cashflow based lending objectives.

3. AI Driven Credit Assessment in Financing

To be effective, Risk Scoring Models need to be dynamically altered to reflect changes in the environment. Risk weights in the Scoring Model may need to change as new information emerges; new data variables may need to be added to the model. Traditionally, Risk Scoring Models used to be altered at periodic intervals. In today’s VUCA (Volatile, Uncertain, Complex, Ambiguous) world, Risk Scoring models need to be far more agile and dynamic. Al has an important feature self learning which makes it very powerful. The use of AI in risk scoring models helps us dynamically change risk weights or add new variables in a direct feedback loop from the environment. We can use AI to auto infer score overrides in the risk scoring model, rather than following a rigid rules based process. Traditionally, risk scoring model overrides were based on one variable, e.g., if an entity’s net worth is negative, then its Risk Score should be reduced by ‘X’ points. However in real life, multiple scenarios occur and AI based risk scoring models dynamically adjust the risk score of an entity by factoring in the interaction of different risk variables. AI can also be used effectively to include alternate data like news, social media, etc. especially in the case of risk scoring of SMEs on which financial data may not be available.

4. Open-Source Transforming Trade & Commerce

In the evolving business landscape, technological changes have transformed how businesses operate, especially in the last few decades. E-commerce has become crucial for businesses, especially the smaller ones in supply chains. This digital shift has brought about increased transparency, proving to be a game changer for small enterprises. The rise of open-source technologies like ONDC and OCEN marks a shift in the dynamics of business-to-business trade and financing. These technologies not only enhance transparency and efficiency but also democratize access, allowing smaller enterprises to thrive in the ever expanding digital commerce ecosystem. The era of open-source technologies is ushering in a new frontier where businesses, regardless of size, can harness the power of digital transformation for growth and success.

5. Emerging DeFI Ecosystem- A New Paradigm for Fundraising

Decentralised finance, driven by the emergence of Blockchain and smart contracts codes which auto-execute instructions on the occurrence of pre-specified events, have the potential to redefine capital markets as we know them today. Currently, capital markets are relationship driven, with intermediaries acting as gatekeepers to the market, limiting access to every business to tap into the power of capital markets to raise funds to meet their needs. Intermediaries such as Investment bankers, Trustees, Paying and Collection agents, Escrow agents etc. not only make the value chain of fundraising very expansive but also make it very costly, deterring small fundraisers. DeFI or Decentralised Finance offers issuers as well as investors an opportunity to interact directly without needing intermediaries. These interactions take place on Blockchains which act as a decentralised record of ownership and are driven by code, which eliminates the need for intermediaries. For e.g., In a world where currency and the asset are both represented digitally on a single Blockchain, Investors can lock their funds in a smart contract (code) with explicit instructions to transfer it to the Issuer in exchange for security tokens (receipts). The complete record of such transfers is held on Blockchain which serves as an immutable proof of ownership. A related benefit of DeFI, driven by the digitization of assets and currencies is the complete automation of expensive back office operations of issuers and investors, making the whole process very efficient and cost effective.

6. Friend shoring – Diversification in Globalization

Globalization shifts towards “Friendshoring,” diversifying supply chains for increased resilience. This trend presents financing opportunities for those embedded in these corridors, necessitating alignment with changing supply chain dynamics. Take the case of a market-leading phone brand initially dependent significantly on China for its parts. Understanding that in the case of any turbulence, the supply chain is at risk, the phone company has made an effort to geographically shift at least half of its centres outside of China, into countries like Vietnam and India. Owing to this shift, supporting functions, such as working capital financing have to accordingly adapt their availability to fit the changing needs of the value chain. VTX is one such solution that bridges the needs of Indian exporters to keep up with global buyers.

7. UPI’s Global Ascent to help Retailers Internationally

The Unified Payments Interface (UPI) is orchestrating a financial revolution not confined to India but resonating globally. Collaborations with over a dozen nations, including France and Singapore, underscore its expanding influence. As discussions unfold between the National Payments Corporation of India (NPCI), the Reserve Bank of India (RBI), and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) to enable UPI transactions in dollars, exponential growth is on the horizon. This global momentum aligns with the RBI’s projection, foreseeing UPI commanding a 90 percent share of global retail digital transactions in the next five years, up from 75.6 percent in FY23. UPI’s dominance is not merely domestic; it’s a transformative force embraced by global retailers, heralding a new era in the international landscape of digital transactions.

8. E-Invoicing Dominating B2B Transactions

The digitization wave sweeps through B2B transactions as e-invoicing becomes a cornerstone. The government’s potential push to extend coverage beyond the current 5 Crores threshold, to even smaller businesses, signifies a broader trend toward embracing technology for financial efficiency and transparency. Supporting businesses in their compliance, Vayana – India’s largest GSP is at the forefront of this revolution, with every 4th e-invoice in India being generated by us.

9. Digital Transformation in B2C E-Invoicing

India’s government contemplates mandatory e-invoicing for B2C transactions, aiming to streamline processes and enhance transparency. The initiative reflects a commitment to improving efficiency and compliance in the business invoicing process. In the short term, businesses may find it challenging to be compliant with the new regulations. However, in the long term, having all of their cash flows on official government data will make it easier for them to secure funding and simplify the tax filing process. For instance, in a hypothetical scenario where businesses with a significant turnover, say 20 crore or more, must ensure the legitimacy of their transactions, without legitimate records, they may struggle to obtain the funding they deserve. This situation not only jeopardizes individual businesses but also leaves more deserving parties without much needed funding, creating potential imbalances in the financial ecosystem.

10. Embedded Finance continues to add efficiency to everyday trade

As we move down the supply chain to smaller companies, the absence of trade finance becomes apparent. Some FinTechs are beginning to address this gap, yet it remains outside the core DNA of smaller enterprises. Embedded Finance envisions a seamless integration of financial processes into every trade transaction. While conventional financing involves independent interactions with banks for funds, embedded finance streamlines the entire process. This will be possible with real time checks on credit envisioning aspects such as GST returns, Financial Verification, and Credit Bureau Scores, etc. on the borrower, facilitating efficient and pro-business financing. This innovative approach eliminates time consuming steps, relying on a common repository of KYCs, E-invoices, and existing credit limits for swift credit evaluations. As regulatory bodies streamline GST processes, the industry could advance towards a stage of heightened innovation and design thinking, propelling the concept of embedded finance in everyday trade.

In conclusion, whether it’s streamlining transactions, embracing new technologies, or adapting to global shifts in the supply chain finance landscape; these trends reflect a commitment to a more straightforward, practical, and inclusive way of managing B2B trade. Embracing these changes ensures that we’re ready for the evolving trade with confidence and practicality.