Disruptive technology seems to be mentioned all over the media these days. It is, in a way, a curious phrase with almost a connotation of negativity. However, it is far from that; disruptive technology brings about change in an industry by completely changing the way things have been done in the past. A more positive description would perhaps be enabling technology, but this does not begin to explain the significant changes that we will see over the next decade.
Since time immemorial, the trading of goods and the provision of services has been a key basis and tenet for human existence. The earliest forms of trade, prior to the existence of money, depended on barter and exchange of goods.
The introduction of the written word and forms of monetary exchange brought with them the opportunity to introduce innovative financing solutions for trade.
In former times, the ancient silk routes transporting goods from China to Rome typified physical supply chains. Such journeys would often take months, across many countries with unstable political and military infrastructure. As a result, this tended to greatly increase the cost of the merchandise as the goods progressed along their journey, usually accompanied by the trader himself.
In modern times, efficient and speedy global modes of transport, combined with containerisation, have transformed the physical supply chain and the speed of transport has greatly increased.
However, due to the intrinsic need for paper, the financial supply chain has not kept pace with physical supply chains. The challenge, as always, is to transparently and simply share information across the numerous involved parties including suppliers, buyers, logistics, financial institutions, governmental bodies, etc.
Many solutions have been introduced in the past 20 or so years but it is fair to say that paper is still the basis for many types of traditional trade financing. The documentary credit, amongst other instruments, has never attracted sufficient attention from the world of technology.
However, it does appear that we are now viewing a ‘sea change' in this perspective with a number of Fintech companies turning their focus towards trade. Such a change is only to be applauded but the question will again be, can the financial supply chain finally keep pace with the physical supply chain?
The inherent problem in many financial institutions has been the speed of change; internal budgetary processes can take months. Combined with a focus on short-term ROI, this negatively impacts on the opportunity to dramatically transform the business leading to, at most, gradual change only.
Fintech companies generally have a philosophy that enables them to move more quickly and, without a bureaucratic legacy, produce more ground-breaking solutions. But do they have the required operational business knowledge and, perhaps more importantly, the level of customer base to produce a quick impact?
The key is cooperation; financial institutions and Fintech companies working together. So it is gratifying to see that this is actually happening in a number of locations.
The next couple of years could be very interesting as results begin to emerge.