A Guide to Help American Exporters Navigate Trade Finance

For many exporters in the United States, understanding the intricacies of trade finance is often a challenging undertaking. Encouragingly, the International Trade Administration (ITA), a U.S government agency whose mission is to create prosperity by strengthening the international competitiveness of U.S. industry, promoting trade and investment, and ensuring fair trade and compliance with trade laws and agreements, created The Trade Finance Guide: A Quick Reference for U.S. Exporters.

The guide defines trade finance as "a set of techniques or financial instruments used to mitigate the risks inherent in international trade to ensure payment to exporters while assuring the delivery of goods and services to importers. In other words, trade finance is a means to turn cross-border trade opportunities into real transactions by effectively managing the competing risks as well as the inherent risks facing both exporters and importers." The guide importantly adds: "The WTO estimates that trade finance plays a key role in facilitating and supporting as much as 80 to 90 percent of international trade. However, the availability of trade finance and the risk of non-payment are among the most often cited obstacles by U.S. SMEs considering selling in global markets."

The ITA says its Trade Finance Guide "explains the basics of trade finance so that U.S. companies, especially small- and medium-sized enterprises (SMEs), can evaluate appropriate financing options to help ensure they get paid for their export sales." What is more, exporters "will also find information on how digitalization is helping to transform trade finance, with the prospect of increasing access, streamlining processes, and reducing costs."

The guide is designed to help exporters answer the following questions:

1. Is your business looking to make that first export sale or expand into more markets, but needs clarity on financing options and methods?
2. Did you know that having open account terms may help win customers in competitive markets?
3. Is insisting on cash-in-advance always a good idea?
4. What are the advantages of exporting on consignment?
5. What should you know about export working capital financing or export credit insurance?

Segmented in 17 chapters including "Access to Capital for Startups in Global Markets, "Methods of Payment in International Trade," "Export Working Capital Financing and Government Guarantees," and "Export Credit Insurance," the guide provides introductions to each of the three U.S. government finance agencies (Export-Import Bank of the United States' Office of Small Business; U.S. Small Business Administration's Office of International Trade; and U.S. Department of Agriculture's Foreign Agricultural Service's Credit Programs Division) in their respective chapters and have updated other chapters, as appropriate, in collaboration with experts from relevant fields. The ITA will be continuously updating the online Trade Finance Guide on an as-needed basis, with a revised PDF version available for download on an annual basis.

While myriad of opportunities exist for U.S. exporters, they also face major types of risks including:

• Country risk is the risk of exposure to financial loss caused by political, economic, and social conditions and events in a foreign country.
• Commercial risk is the risk of non- and delayed payment caused by the importer’s insolvency or cash-flow problems.
• Foreign exchange risk is the risk of exposure to financial loss due to the fluctuation of an exchange rate change when trading with countries that have a different currency.
• Cultural influences are an additional risk factor that can negatively affect all aspects of international business.

And as an advisor to many American exporters, I appreciate the following tips for exporters:

• Be mindful of emerging trends that could reduce the complexity, cost, and processing time of trade finance transactions.
• Inquire with your current trade finance provider about available or planned digital options that could enhance efficiency and reduce costs.
• Explore trade finance options, including consulting new fintech-based trade finance providers about both traditional instruments and innovative offerings.
• Be cautious of potential fraud and cyber security risks that may accompany new technologies and online trade finance platforms.

In presenting the benefits of exporting, the guide notes:

The United States is the world's second largest exporter, with $2.5 trillion in goods and services exports in 2021, according to the U.S. Census Bureau and the U.S. Bureau of Economic Analysis. However, less than one percent of America's 32 million companies export; and of those do, about 60 percent sell to just one or two markets—Canada and Mexico, for example. And SMEs, which account for 98 percent of the nearly 280,000 American exporters, are even less likely to export to more than one market. With 95 percent of the world's consumers living outside of the United States, beginning to export-- or expanding to additional export markets—can help SMEs expand their sales, diversify their portfolios, and insulate them against periods of slower growth in the domestic economy.

What tips do you have on financing new export sales?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Report Explores a New Era for Digital Payments

Following a white paper, Going digital: payments in the post-Covid world, The Economist Intelligence Unit (The EIU) published in 2021, which showed how digital channels were replacing traditional modes of payments across the world amid greater uptake of mobile wallets and other forms of digital payments, The EIU recently developed a new dataset, along with five-year forecasts, confirming these trends. Entitled Beyond borders: a new era for digital payments, this white paper offers an overview of The EIU's forecasts for digital payments, as well as the accompanying stagnation of automated teller machine (ATM) numbers and the mixed outlook for card payments. It also looks at the new frontier for disruption: cross-border payments.

Below are the paper's key forecasts:

• Following a surge during the pandemic, when lockdowns forced consumers online, growth in digital payments will soften during our five-year forecast period (2022-26).
• The number of ATMs will stagnate or decline, while debit and credit cards will struggle to maintain market share as mobile payment platforms gain more traction.
• While digital disruption to domestic payments continues, the ongoing Russia-Ukraine war will cause parallel disruption to cross-border payment systems and potentially challenge the dominance of SWIFT.
• Countries will seek to interlink their national fast-payments systems, reducing intermediaries and bringing down the cost of sending money abroad.
• Countries across Southeast Asia are in the process of interlinking their fast-payments systems to allow travelers across the region to purchase goods and services by scanning quick-response (QR) codes.

The report also points that APIs, tokenization and blockchain will together become the new normal. "As well as challenging SWIFT, disrupting cross-border payments will mean adopting innovative solutions and emerging technologies, including blockchain, APIs and tokenization."

• APIs have been a game-changer for retail payments, providing end-to-end tracking of payments and confirmation of transactions to all parties involved. They enable interaction across the digital marketplace, higher levels of transparency, and a seamless experience for both customers and merchants.
• Tokenization, which creates a unique code for every single transaction conducted through an API, and blockchain technology, have also emerged as a major way to ensure security, improve efficiency and raise the transparency of payments.
• Blockchain technology employs encrypted distributed ledgers that eliminate the need for any intermediaries but still provide verification of transactions in real time.
• As with domestic payments, real-time payments will also become a cornerstone for the acceleration of cross-border payments.

With respect to governments encouraging development of cross-border payments linkages, The EIU expects "increasing involvement from government entities to facilitate the development of the fintech sector, promote financial inclusion or aid the flow of remittances from overseas workers." The paper further says "Singapore (with PayNow) and Thailand (PromptPay) were the first countries to interlink their fast-payments systems in April 2021. More countries, especially in Asia, have since unveiled plans for similar tie-ups." Importantly, "This process will also be facilitated by the development of central bank digital currencies. These digital currencies aim to provide efficient and inclusive payments services—which traditional systems have failed to provide—and also emerge as trustworthy alternatives to private projects such as stablecoins, cryptocurrencies that (in theory) peg their value to another currency or commodity."

At the same time, the paper notes that "countries like Russia, China and India could encourage international trade denominated in their own currencies, or enter into bilateral trade agreements—between the rupee and ruble, for instance—to avoid settlements in dollars or euros." What is more, "Although the US dollar’s dominance of international trade will remain unchallenged in the short and medium term, emerging powers in Asia will try to reduce the greenback’s influence to avoid runs on their foreign-exchange reserves and mitigate the impact of any future disruptions."

The report provides a thorough explanation on how digital channels are replacing traditional modes of domestic payment around the world amid greater uptake of digital wallets and other forms of mobile transactions. Moreover, businesses of all sizes will find value in The EIU's latest forecasts for domestic payment flows and the deep-dive into the future of cross-border transactions.

How is your business taking advantage of the digital disruption of cross-border payments?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

GSMA Report Says 5G Coverage Will Accelerate Across Asia Pacific Supporting Advancements in Next-Generation Services

"At the end of 2021, the number of mobile internet users in Asia Pacific exceeded 1.2 billion, reflecting a penetration rate of just under 45% of the population," the GSMA notes in its annual report on the state of mobile economy in the Asia Pacific region. "This means that more than half of the population live in areas covered by a mobile broadband network but do not yet subscribe to a mobile internet service (usage gap)."

The UK-based organization, which represents the interests of mobile operators worldwide, adds that "The main reasons for the usage gap include the lack of digital skills (especially among older populations), lack of affordability among low-income households and online safety concerns among minority and vulnerable population groups. Addressing the usage gap for these key groups will extend the benefits of the internet and digital technology to more people in society. This requires concerted efforts by a broad range of stakeholders working together with mobile operators and other ecosystem players, such as device manufacturers and digital content creators."

The report's other key findings include:

• 96 percent of the population of Asia Pacific are covered by mobile broadband networks
• By 2025 there will be 400 million 5G connections across the region – just over 14 percent of the population
• $770 billion of economic value added by the mobile industry in 2021, approximately five percent of the GDP in the region
• Security and sustainability move up the agenda for operators
• Policymakers and regulators can fuel growth and innovation by finding the proper balance in the regulatory environment to support mobile network deployment and operations.

In addition to providing significant economic value to the region's economy, "The mobile industry continues to deliver social impact across Asia Pacific, primarily by providing the connectivity that enables the growth of small businesses and digital transformation of enterprises, and granting access to life-enhancing services and tools for citizens," the report explains. "Mobile money is one example, with adoption scaling rapidly in parts of Asia Pacific as operators support the region’s shift to digital payments."

The report also mentions that "The metaverse ecosystem is growing in many countries around the world, including in Asia Pacific. This is demonstrated by the interest of public agencies and private enterprises in establishing a presence in the metaverse and actively utilizing the platform in their engagement with customers and other stakeholders." For example, "South Korea plans to spend at least $186.7 million to create its metaverse ecosystem, as part of the country's Digital New Deal."

As highlighted in the image on right, the GSMA highlights how "Other governments in the Asia Pacific region, both at national and provincial levels, have outlined plans to harness the potential of the metaverse to increase the efficiency and quality of public services, as well as improve collaboration between local and national government agencies. This will be crucial to the development of the broader metaverse ecosystem, including for content creators and telecoms operators."

On the topic of security and sustainability, the report points out that "Security is the top priority for network transformation strategies among operators in Asia Pacific. This is not surprising given the backdrop of rising security threats to telecoms networks and, increasingly, to end users." Using Thailand as an example, the GSMA says 56 percent "of cyber threats in 2021 reportedly occurred via vulnerabilities in mobile devices."

The report also notes that "Operators across the region are also accelerating the shift to more sustainable operations, given the demand for a greater focus on energy efficiency from key stakeholders, including shareholders and customers. The industry is addressing the challenge through a comprehensive set of actions, such as the use of solar and improving the energy efficiency of networks.

As for creating policies to facilitate digital innovation, the GSMA asserts that "As society now moves towards a 'new normal' post pandemic, mobile connectivity will be central to the development of new and innovative technological solutions to today's problems. As 5G network deployments continue, 5G's ability to support next-generation offerings (such as cloud services, AI, IoT and edge computing) will drive digital economic growth and innovation."

Moreover, I support GSMA's assertion that "Policymakers and regulators can fuel growth and innovation by finding the proper balance in the regulatory environment to support mobile network deployment and operations." The organization says policymakers should also take steps to:

• establish a forward-looking regulatory regime that supports the financial sustainability of the industry and provides non-discriminatory conditions to drive new innovations from large companies and SMEs
• adopt policies that enable the building and deployment of infrastructure to support future networks accessible to all
• create and maintain a safe and trustworthy online environment to protect users from threats
• ensure that available spectrum serves the future demand for connectivity.

"These steps have the potential to set the proper foundation to support future economic growth, societal development and technological innovation."

Infographic: GSMA

Despite some near-term geopolitical and socioeconomic risks, I remain bullish about Asia Pacific's mobile economy. How are you positioning your business to capitalize on the region's growing mobile market?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.