A boom in e-commerce platforms and online marketplaces is transforming cross-border trade and enabling companies – not least SMEs – to boost global exports. But what opportunities does this yield for lenders, insurers and fintechs? Felix Thompson reports.
SME exports of low-value retail goods are not typical fodder for global trade finance banks, which might perceive such transactions as offering too little reward for too great a risk.
Yet surging e-commerce trade across Asia, Europe and the Americas is presenting opportunities for the world’s largest trade lenders and opening up an entirely new market segment.
Across the Asia Pacific region, cross-border e-commerce activity is growing at 29% a year, much faster than domestic sales levels, the Asian Development Bank says in a November report.
In China, the epicentre of the continent’s e-commerce boom, HSBC expects cross-border trade conducted via digital channels to hit US$500bn in 2025, up from US$155bn five years ago.
Leading this digital trade push is a club of e-commerce giants including Alibaba, Shein and Temu.
Business-to-business (B2B) platform volumes are also growing rapidly, says François Burtin, global head of e-commerce at credit insurer Allianz Trade. “B2B commerce is already four to six times bigger than B2C, and is achieving about 15 to 22% year-on-year growth upwards,” he tells GTR.
In the coming years, e-commerce-driven trade is only expected to accelerate further, as individual buyers and corporates expand their use of consumer and B2B platforms and marketplaces.
In turn, financial institutions are gradually shifting their focus beyond e-commerce payments.
Global banks have for years wielded their cash management expertise in the e-commerce market, ferrying payments between the buyer and supplier, or a third-party lender. But increasingly, they are looking to assume a more direct role by financing the trade flows themselves.
“The way businesses are buying and selling is markedly different from the past, so the way these trades are financed must adapt to the changes,” says HSBC’s Aditya Gahlaut, co-head of global trade solutions in Asia Pacific.
Merchant financing
As e-commerce financing evolves, a key focus will be on SME suppliers active on consumer and B2B platforms seeking to export their wares internationally.
Hong Kong-based fintech FundPark, for instance, has provided over US$2bn in working capital and trade finance to SME merchants on platforms such as Amazon, Walmart and eBay since its launch in 2016.
A core tenet of FundPark’s approach is harnessing data: by extracting information from e-commerce platforms as part of its wider credit assessment model, the firm is able to boost liquidity for SMEs, largely in China.
The firm uses AI technology and data analysis to power its proprietary risk-management platform to make credit decisions, instead of relying on collateral when SMEs request financing. This is crucial for SME e-commerce merchants that often lack a physical shop and a strong balance sheet.
Exporters are generally SMEs selling unbranded fast-moving goods via digital platforms, while importers typically buy branded consumer goods to be sold to middle class consumers in the Chinese market via domestic marketplaces, says Hay Yip, chief strategy officer and chief of staff at FundPark.
Banks are now also beginning to seize opportunities, leading to a surge of investments over the past year.
In December, e-commerce fintech SellersFi secured a credit facility from Citi and independent asset manager Fasanara Capital worth US$135mn, with the potential to be upsized to US$300mn.
In the weeks that followed, Citi would help facilitate a partnership between SellersFi and Amazon, where SellersFi will provide credit lines worth up to US$10mn to Amazon platform suppliers, with the bank rolling out the financing for these facilities, as reported by Banking Dive.
HSBC has also been active and struck various partnerships with fintechs in China and Hong Kong.
In July 2023, the bank teamed up with Dowsure Technologies, a Chinese cross-border e-commerce application programming interface (API) platform, to facilitate the flow of trade finance to SME merchants by leveraging transaction data, such as inventory, sales and refund records.
HSBC is able to offer credit approvals in “real time” and merchants can secure loans against sales on the Amazon platform.
Earlier this year, FundPark doubled the size of a Goldman Sachs-led asset-backed loan to US$500mn. The other backers were not named, but Alternative Credit Fund and Cypress Capital Hong Kong Limited participated as mezzanine investors when the deal first closed two years prior.
In June, FundPark secured another asset-backed facility of up to US$250mn led by HSBC.
“If we compare the situation to a couple of years ago, when names such as ourselves… were seen as more fintech disrupters and more traditional financial institutions saw us as competitors. Now there is wider acknowledgement we can serve as partners and there is ample room for us to collaborate in supporting this historically underserved segment collectively,” Yip tells GTR.
Embedded finance
Banks are also increasingly developing embedded finance solutions, with buy now pay later (BNPL) a notable example.
Originally gaining popularity in the consumer market by providers such as Klarna, Affirm and AfterPay, financial institutions and fintech partners are now exploring how these “point of sale” credit solutions can boost liquidity for SMEs buying goods via B2B marketplaces and platforms.
“The B2B digital commerce boom is impacting traditional buying and selling flows” and facilitating growth in purchase-on-credit products, says Enrique Rico, Santander’s global head of trade and working capital solutions.
“These products are mainly being offered by fintechs,” Rico tells GTR, although he notes these companies are increasingly looking to banks for financing and balance sheet support.
For instance, in early 2023, Allianz Trade, Santander and B2B e-commerce payments platform Two rolled out a BNPL product for large multinationals, enabling buyers to make instant deferred payments at checkout.
Two manages the payments technology, Santander finances the upfront payment and credit to buyers, while Allianz Trade provides insurance cover via an API.
Allianz Trade insured roughly €350mn of e-commerce-related invoices last year, and to date, has largely targeted larger-sized corporates in the US and Europe. Its API solution uses the firm’s database containing commercial and financial information on more than 80 million businesses.
Partners include undisclosed financial institutions and B2B BNPL providers across Europe, the US and Asia Pacific, in addition to Santander.
Other lenders are also developing their embedded finance offerings, often through strategic investments.
In April 2023, Hokodo, a European fintech that provides B2B BNPL and trade credit solutions, received a cash injection from Citi to drive growth in new markets. By then, the company had established itself in the UK, France, Spain, Germany, Belgium and the Netherlands.
Also in 2023, HSBC invested US$35mn in B2B trade platform Tradeshift as part of wider efforts to create a trade and financial technology joint venture.
The as-yet-unnamed business, due to be launched this year, will develop and commercialise technology that will be used by HSBC to embed its transaction banking solutions into Tradeshift and other fast-growing e-commerce and marketplace venues. In November, HSBC named Vinay Mendonca as the firm’s chief executive officer.
The securitisation of receivables is offering BNPL fintech companies another avenue to boost their liquidity, says Maurice Benisty, chief commercial officer at working capital provider Demica.
An example of this was in late 2021, when embedded finance provider TreviPay secured a US$215mn securitisation package – facilitated by Demica – to boost its global expansion in North America, Europe and Asia.
“As they accumulate portfolios of receivables, they are then looking to banks to finance them,” Benisty says.
“Before banks, these firms were funded by private credit or occasionally, asset-based lending. Once you get to a certain level of scale and portfolio performance, it becomes very interesting for banks. You have all these platforms investing against different industry verticals… banks can fund it.”
Downside risks
As trade finance banks work to boost finance for e-commerce firms, potential hurdles must be addressed.
Credit and fraud risks are a clear concern for banks, given e-commerce often involves largely unknown SME merchants, while embedded finance solutions require instant credit assessments.
Banks typically run lengthy checks to mitigate fraud and the threat of non-payment, often requiring collateral, but these stipulations are difficult to apply on fast-moving consumer and B2B platforms.
“Fraud is always the elephant in the room when you sell online,” says Burtin of Allianz Trade. “There is always a risk that the person you’re selling to is not who they claim to be. It is difficult for businesses to assess when they are only digitally transacting with a buyer.
“A fraudulent buyer could pretend to be a very reputable buyer, which you blindly give credit to, and then he doesn’t repay.”
Ultimately, instant checks and financing decisions must be made quickly and firms often have access to “very little data,” Burtin says. As such, the process may not be “as robust” as usual.
However, he highlights that Allianz Trade’s fraud scoring model and know your buyer solution helps mitigate these challenges. At the same time, the risk is spread across a large number of small transactions worth thousands at most.
“It’s not like [we will cover] a €1mn transaction using our instant e-commerce solution, without manual checks. Our e-commerce package is designed to underwrite a huge volume of very small, low value, transactions. We are confident in the model and speed of our decisions, as long as we make overall good decisions,” he says.
“We would not apply this type of solution for a very large invoice where companies are more likely to reach out to the supplier, negotiate terms, and sign framework agreements, rather than filling up their basket and going to the checkout page,” he adds.
Banks have acknowledged that traditional trade finance strategies are not well suited to the e-commerce market.
“Our traditional lending and trade finance approach of looking at clients one-by-one is not scalable,” says David Rego, global head of payments, transaction banking, at Standard Chartered.
He suggests banks take a portfolio approach when looking to finance on B2B e-commerce platforms, selecting a sector or group of clients to allocate funding towards.
Growing partnerships
To date, fintech companies have been more active in providing merchant and buyer-side financing in the e-commerce market.
However, financial institutions will be essential as the need for liquidity grows and as alternative financiers grapple with headwinds themselves – not least higher interest rates and regulatory scrutiny.
“The most fundamental reason why banks are well placed to capitalise is lower funding costs, which will be cheaper than a lot of fintech companies. In the days of zero and low interest when fundraising was easier, they could go out and lend,” Rego tells GTR.
“Now there’s a real cost and the funding model of BNPL providers is being challenged. Moreover, the regulators will start to come in and licensing of fintech firms involved in lending may change, which could force some to reconsider.
“Ultimately, fintechs will ask themselves: do they want to get into lending, or be data model and insights providers?”
Still, Rego does not suggest banks will go it alone. Instead, the e-commerce financing space will be defined by partnerships between banks, digital platforms and companies that specialise in harnessing data. Fintechs echo these views.
“Financial institutions are looking to work with fintech partners, such as ourselves, to serve this market, because they recognise our intrinsic value add. Our USP is how we go about data analytics and credit assessment, which banks have had difficulty in doing themselves” says Yip.
“There’s massive potential here to support SMEs that are not just underserved, they’re not served at all.”
