Customers want their commercial experiences in global trade, be it B2B or B2C, to be low-effort, seamless, and fast. Any perceived friction impacts the adoption and usage of the product/service. Thus, one way to assess friction in commercial transactions is anything that may prevent a potential customer from completing a commercial transaction.
Technology has significantly alleviated friction in the B2C space, from the better discovery of goods and services across geographies and building trust through user reviews to seamless payment methods. The B2B space, however remains relatively nascent in this regard, although interest in this space has grown significantly of late. International trade, in particular, is one area where technology has tremendous potential to make transactions simpler, faster and more frictionless.
Building new commercial relationships to improve global trade practices
International trade, by definition, involves developing relationships with trading entities around the globe. This process is wrought with friction – new relationships can take months to cultivate and often involve extensive in-person networking through trade shows and personal connections, multiple visits to potential trading partners to establish trust, and comprehensive (and often expensive) quality audits.
While technology cannot wholly replace these steps, it can go a long way in building trust by aggregating and surfacing relevant business information.
B2B marketplaces are a good example of how technology is connecting buyers and sellers across the globe. Collaboration tools for video-conferencing are helping alleviate some aspects of in-person meetings. Community pages on social networks are helping take offline trade networks online, though there is a significant opportunity to do more in this domain.
Resolving working capital challenges through flexible payment terms
International trade transaction cycles are often as long as 45-60 days, leading cross-border traders to seek generous payment terms from their suppliers and/or customers. Large traders can turn to banks and traditional financial institutions to address this issue through instruments such as letters of credit. Small businesses, however, often struggle to meet the extensive documentary requirements and risk criteria instituted by these institutions. This is a source of friction between buyers and sellers that can inhibit transactions and has contributed to a working capital gap estimated at ~$3 trillion globally. The current economic climate and a potential recessionary environment may lead to further tightening of risk policies, which in turn could further exacerbate this problem.
Technology has enabled many fintech companies to step in to fill this void and provide customized working capital solutions such as buy-now-pay-later, inventory financing, and receivables financing to support small and medium businesses in particular. These new-age companies leverage technologies like machine learning to assess risk at scale, digital platforms to service customers more efficiently, and automated solutions to manage operational costs. As a result, they can offer working capital at attractive prices with much lower documentary requirements and faster turnaround times than traditional financing services.
Buyers and sellers can seek out such providers in their local markets to access flexible payment terms to help them better manage their cash flows and alleviate a key point of friction in trade transactions.
Simplifying trade documents through digitization
Global trade is a paper-intensive industry – physical documents exchange many hands throughout the value chain. These paper-based documents are tedious to manage, store and retrieve. They are also susceptible to fraud, leading ecosystem players to enforce additional controls such as notarization, which further adds to the friction. A solution to replace these paper-based transactions can greatly help sellers and buyers minimize the risk of miscommunication and fraud and resolve a major source of friction.
Several companies, both large and small, are experimenting with smart contracts, powered by blockchain to solve this problem. In simple terms, smart contracts are self-executing agreements between two or more parties. They can be distributed securely across a blockchain network system and are tamper-proof, cost-effective, and time-saving for all parties while preserving ownership, traceability, and security, paramount in any cross-border transaction. In addition, a digital trail can also enable banks and fintechs to fund cross-border transactions more efficiently, help containers move seamlessly across ports, streamline customs processes during shipment delivery and simplify insurance claims.
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Improving collaboration through communication apps
The steady rise of social media and instant messaging apps has increased the demand for instant interaction, and businesses have come to expect quick responses from their commercial partners. Speed of response is becoming increasingly critical in the B2B sphere, and responding to queries quickly and efficiently can strongly impact conversion rates. As per Gartner, 32% of chief marketing officers (CMOs) list customer experience as a top priority for B2B success.
It is no surprise that business messaging platforms like WhatsApp for Business have seen good traction in B2B communications. These platforms help disseminate information more efficiently than traditional B2B methods such as web forms, phone calls and emails, thus enabling businesses to collaborate more efficiently and reducing the friction associated with cross-border communications.
Collaboration tools such as cloud-based CRM systems, browser extensions that enhance customer acquisition, conversions, and operations through real-time intelligence, and personalization platforms that boost conversion rates are all examples of how technology is transforming communication and collaboration between buyers and sellers.
Although technology has solved many friction points in B2C transactions, the world of B2B commerce continues to pose several friction points that need to be addressed. Building new customer relationships, enabling more transactions through flexible payment terms, simplifying the transaction process through document digitization and improving communication and collaboration among buyers and sellers are a few ways in which technology is already playing a part and has headroom for a transformative role. The future looks promising with increasing interest in this space from both new-age fintech companies and established players.
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