KEY TAKEAWAYS
  • The global trade market is dominated by a few large players protected by competition by steep barrier to entry for new firms, despite accounting for a smaller portion of national GDP.
  • New firms leveraging emerging technologies like blockchain could offer solutions to a number of these entrenched challenges.

Historically, banks only disintermediate approximately 36% of total trade finance transactions with the remainder as cash-in-advance transactions or open account transactions. In addition, these transactions are lower risk, with an average duration of less than 90 days and very low default rates with high recovery rates for defaults. This particular form of finance yields a low, but steady margin in the range of 4% with relatively low risk. While this certainly leaves the opportunity set wide open and makes the operation an attractive one from a risk perspective, the reality is that slim margins, lack of balance sheet, and other regulatory issues limit how large the trade finance market can grow.

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