Factoring and finance in a new trade geography

Trade seems to be fragmenting. The once-tightly integrated supply chains that connected extractor to producer to consumer are fraying under the weight of tariffs, political realignments, and the shifting sands of industrial policy. Economic nationalism is back on the agenda, and global trade flows are being rerouted in response.

Courtesy Trade, Treasury, Payments (TTP)

Trade seems to be fragmenting. The once-tightly integrated supply chains that connected extractor to producer to consumer are fraying under the weight of tariffs, political realignments, and the shifting sands of industrial policy. Economic nationalism is back on the agenda, and global trade flows are being rerouted in response.

Most of the headlines today are focused on the use of weaponised trade policy in the geopolitical posturing currently taking place among global leaders. Behind those headline-grabbing moves are other, more sustained currents that are driving trade and its financing forward.

To really understand what is going on today, one must look beyond the surface and deeper into the regions, technologies, and institutions underpinning it all. For trade finance, historically viewed as a paper-bound sector, some of that change is digital, some legal, and still some contextual.

To explore this in greater depth, Trade Treasury Payments (TTP) Editor Deepesh Patel spoke with Neil Shonhard, CEO of MonetaGo, and Neal Harm, Secretary General of FCI, following the July Breakfast Club in London.

China’s export markets are shifting

Chinese exports are being diverted away from America, and many commentators point to US President Trump’s latest round of trade policies towards its economic rival as the cause of this rerouting. 

The beginning of this change, however, predates Trump’s return to the Oval Office.  

Harm noted that the trend is tied to broader shifts in trade flows and the growing importance of emerging corridors. “You look at Bangladesh and Cambodia and Vietnam, you look at South America, you look at what’s going on in Africa. These are all corridors that were very well established with the West, but have seen seismic shifts in their trade partners over the past decade,” he said.

Even in 2023, China’s exports to the developing “Global South” economies surpassed its shipments to all developed markets, as the share going to the United States fell to only about 15% (down from 20% in 2018)​.

These shifting trade flows are backed by over a decade of strategic infrastructure investments under China’s Belt and Road Initiative, a global infrastructure development strategy first adopted by the country in 2013. 

For example, in November 2024, China officially opened a mega-port in Chancay, Peru, its first port in South America and the largest on the west coast of the continent. The deep-water port, financed by over $1 billion in Chinese loans since planning started in 2018, gives China a direct Pacific gateway to resource-rich South America and cuts shipping times to Asia by up to two weeks.

The level of investment in trade infrastructure is paying off. Over the past decade, Beijing has unseated the US as South America’s largest trading partner by aggressively expanding its import purchases from the region (which are generally of commodities like soy, corn, copper, etc.)​. 

China has been able to adapt so quickly to protectionist pressures from the White House because it has been laying the groundwork for revised export flows since well before Trump fired warning shots during his first term in office.

While advancing China’s influence, that physical infrastructure in the global south is also helping promote greater South-South trade connectivity. Digital infrastructure development across that region presents another opportunity.

Digital infrastructure and interoperability initiatives in Africa, the GCC, and India

Developing markets in the global south are presiding over a large opportunity to increase living standards for their citizens.

Shonhard noted that open account trade makes up around 85% of global transactions, yet half of all financing requests are rejected due to perceived risk. “If you can start to reduce that risk, you can unlock more liquidity,” he said. He added that Africa, in particular, offers significant potential: “It’s where addressing perceived risk can have the greatest impact in getting liquidity to the people who need it most.”

When entrepreneurs in developing regions are able to access financing at the levels and prices that so many in the developed world take for granted, they are able to grow their businesses and inject true sustainable economic development into the region. 

One key enabler of such financing is the digital transition. Before much meaningful progress can be made on the digitalisation front, however, particularly in developing regions of the world, there needs to be concerted efforts at building digital infrastructure and fostering a regulatory environment for digital tools to function. Developing markets around the world are moving in this direction.  

In June 2023, the African Export-Import Bank (Afreximbank) launched the Africa Trade Gateway (ATG), a single-window suite of five digital platforms designed to facilitate trade throughout the African Continental Free Trade Area (AfCFTA). The ATG ecosystem includes tools like a Pan-African Payment and Settlement System (for cross-border payments), a customer due diligence platform (MANSA), and an Africa-wide credit information and receivables exchange, all of which are intended to enable the financing of intra-African trade at scale. 

Countries in the GCC are similarly investing in trade digitisation and legal reform to modernise commerce. Notably, Bahrain made history as the first nation to enact the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Transferable Records (MLETR) back in 2018. The UNCITRAL MLETR makes electronic negotiable instruments (e.g. e-bills of lading, e-promissory notes) legally equivalent to paper.

In India, efforts are underway to create a more integrated and tech-enabled trade finance ecosystem. The government has already implemented electronic invoicing and the TReDS online factoring exchanges to help SMEs monetise receivables. Plans include potentially recognising digital trade documents (aligning with MLETR) and unifying various trade finance regulations​. 

Shonhard said, “The TReDS model is a very, very strong and successful tool and every single country, I believe, should have a marketplace to drive down the cost of borrowing and to increase liquidity.”

The key to successful digital integration is to ensure that all of these new systems are able to communicate with each other. In general, the trade finance industry must move away from isolated digital islands and embrace platform-agnostic, interoperable standards.

The good news is that the common thread in the digitalisation discussions occurring across Africa, the Middle East, and South Asia is an emphasis on creating and using interoperable standards and registries, which can help with fraud prevention and inclusive finance.

Data standards can help with fraud prevention and inclusive finance

Enhancing data standards (i.e., for the metadata that accompanies trade transactions) is crucial for combating fraud and enabling more inclusive finance by empowering lenders to share critical information without compromising client privacy​. 

One proposed means of achieving this is through a common and standardised fraud registry, and many stakeholders would benefit from such a tool, given the level of fraud attempts that still exist in the world.

Shonhard said, “Our solution [MonetaGo] is stopping hundreds of millions of dollars of fraud every single month. That wouldn’t be happening if there were no fraud out there. Nobody can deny the efficacy of the solution, but also the problem at hand.”

Centralised registries of transactions that serve as a single source of truth across supply chains have been proven to be an excellent tool in reducing duplicate financing fraud (i.e., where a company might try to finance the same invoice with multiple lenders). Here, common data standards can enable a shared registry that all lenders can keep updated to help each other spot fraudulent transactions (i.e., duplicate invoices). 

There are examples of financial technology solutions, like MonetaGo, that are leveraging techniques like document hashing and structured messaging standards to detect and prevent fraud in real time. 

The MonetaGo platform creates a unique digital hash of each trade document and uses ISO 20022 data messaging standards to allow institutions to verify whether a receivable has already been financed elsewhere. Before these standardised digital offerings, many such fraudulent claims would have slipped through the cracks between siloed systems​.

This kind of metadata-driven cooperation is helping to mitigate fraud risk and (since banks become more willing to lend when they can reliably assess that an invoice or bill of lading isn’t pledged multiple times) expand the pool of capital available to businesses looking to finance trade. 

The next step in boosting access to trade finance is to address the misplaced risk perceptions that have somehow been placed on trade finance as an industry.

Perceptions of trade finance need to change to reflect its actual risk profile

There is a stark disconnect between perception and reality when it comes to trade finance risk.

Harm said, “When we sit down with the regulator and they say, well, receivables is risky… in our network we’re seeing dilution of under 3% and write-offs of under three basis points in the portfolio making it one of the safest trade products.”

Empirical data from the International Chamber of Commerce (ICC) Trade Register supports this perception, showing that short-term trade finance products have minuscule default rates compared to other lending. 

For example, default rates on import letters of credit average around 0.08%, and only 0.04% on export letters of credit, with other trade loans in the 0.1-0.2% range. Overall, ICC data indicates default probabilities of roughly 0.04%-0.2% for trade finance assets globally, orders of magnitude lower than typical corporate loan default rates. 

According to the FCI Annual Review 2025, global factoring volume reached €3.9 trillion in 2024. Europe remained dominant with €2.6 trillion, representing about 67% of the market, while Asia-Pacific grew 2.4% to €964 billion. Africa saw €50 billion in volume, a 5.9% increase, and South America rose 5.8% to €152 billion.

Even in riskier regions, the performance is strong. In Africa, trade finance defaults are about 5%, which, while higher than the global average, is still far below the ~9% default rate for all bank credit in that region​. Losses incurred by factors and trade financiers are further mitigated by the self-liquidating, short-tenor nature of these transactions and often further by credit insurance. 

Rewiring global trade, one standard at a time

Traditional trade corridors are being reconfigured and old certainties are giving way to new risks and yet the trade finance industry is rising to the challenge. Practical innovations like fraud registries, e-document recognition laws, cross-border payment systems, and unified data standards are making this possible.

The latest FCI figures show the scale of the opportunity. Factoring alone now accounts for €3.9 trillion globally, providing a sizeable pool of short-term trade credit that could be expanded further through interoperability and risk perception reforms.

Yet for this progress to reach scale, three things must align. Trust, interoperability, and perception. Trust in the data shared across platforms. Interoperability across digital tools and jurisdictions. And a revised perception of trade finance risk, especially in regions where need and opportunity are greatest.