Trade Finance Market Poised to Witness Modest Growth: Forecast to Grow at a CAGR of 5% During 2022-2028
The global trade finance market growing at a high rate owing to rapid globalization and flourishing import and export activities. Additionally, the growing adoption of advanced technologies, such as blockchain and cryptocurrency, artificial intelligence (AI), Internet of Things (IoT), etc., are also driving the market growth
A recent study conducted by the strategic consulting and market research firm,Report Ocean, revealed that the trade finance market is estimated to grow at a CAGR of 5% during the forecast period of 2022-2028. With the spread of globalization and the increasing need for financial tools to support and mitigate the risks associated with international transactions, the global trade finance market has experienced significant growth. Furthermore, increasing adoption of advanced technologies, such as blockchain, AI, IoT, machine learning, etc., among small and medium-sized businesses also influences the growth of the trade finance market worldwide. However, inaccessibility to trade finance services and a huge supply-demand gap may act as a major restraining factor for the global trade finance market.
Increasing Number of Small and Medium-Sized Enterprises Driving the Growth of the Global Trade Finance Market
Trade finance products are gaining huge popularity among small and medium-sized enterprises. According to the Organization for Economic Co-operation and Development, the trade finance instruments allow small and medium enterprises to engage in international activities and participate in global value chains (GVCs), besides boosting innovation. The joint efforts by the banks other service providers to bridge the gap between trade finance demand and approvals for the small and medium-sized enterprises is anticipated to drive the market growth during the forecast period.
Rising Demand for Letter of Credit Boosting the Global Trade Finance Market
The global trade finance market is segmented into a letter of credit, bill of lading, export factoring, insurance, and others, based on the offerings. The letter of credit segment accounts for the largest market share as it is considered the safest instrument for international traders. It provides protection to sellers against their sales even if the buyer goes bankrupt since the creditworthiness is transferred to the issuing bank. Therefore, the payment to the seller or the lender becomes an obligation of the said bank.
Trade Finance Market - By Service Provider
Based on service providers, the trade finance market is segmented into banks and trade finance houses. Banks hold the largest market share due to the higher goodwill and security they offer compared to other financial institutions. Moreover, businesses trust banks better since payment on exported goods have higher guarantees. These service providers also offer higher security against currency fluctuations, which plays a major role in propelling the market growth. However, the trade finance houses are also projected to witness impressive growth during the forecast period due to the increasing number of trade finance houses across the globe.
Trade Finance Market - Regional Insights
Geographically, the global trade finance market is segmented into North America, Europe, Asia-Pacific, Latin America, Middle-East & Africa. Among these regions, North America dominates the global trade finance market. However, the Asia-Pacific region is projected to witness the highest growth rate during the forecast period. Trade Finance Global reports that developments in trade between the United States and China have had a significant impact on the growth of trade finance among nations in South Asia. The expanding manufacturing and increasing focus on streamlined production is expected to play a major role in the trade finance market's growth.
Impact of COVID-19 on the Global Trade Finance Market
The COVID-19 pandemic outbreak negatively impacted the growth of the trade finance market. As per a report by International Finance Corporation, COVID-19 pandemic directly impacted the countries and bilateral trade they engage in, which is creating hindrances for the growth of the trade finance market. The dramatic decline in the production and supply chains on global levels also directly influenced the demand for trade finance products due to the lower need for security against imports and exports.
The leading players in the global trade finance market are Asian Development Bank, Wells Fargo & Co., Banco Santander SA, Standard Chartered Bank, Bank of America Corp., Royal Bank of Scotland, BNP Paribas SA, Morgan Stanley, Citigroup Inc., Mitsubishi Ufj Financial Group Inc., Crdit Agricole Group, JPMorgan Chase & Co., Euler Hermes, HSBC Holdings PLC, Goldman Sachs Group Inc., and other prominent players.
The market is in the budding stage, and therefore, is highly dominated by certain established banks and financial institutions. Companies in this industry often introduce new products or services to broaden their market reach. They are also increasingly focusing on expanding their business internationally. Furthermore, the adoption of competitive strategies such as partnerships, mergers, acquisitions, joint ventures, etc., is also prominent in this market.