The biggest compliance issue is heightened concern about how well banks know their customers. Knowing your customer creates the expectation that the bank will apply appropriate controls, interest rates and limits based on deep understanding of the customer's business. Emerging markets still utilize documentary credits but are being coerced by large buyers in mature markets to accept open-account transactions.
Banks are adapting to trade finance market changes that emphasize open-account transactions over traditional documentary credits. Banks want to leverage information from their larger buyer clients to be able to support those clients' smaller suppliers, with whom they do not have relationships in many cases. Technology is enabling "communities" that electronify invoices and associate them with purchase orders and payment approvals. By knowing the buyer's intent regarding timing and amount of payment, the bank can theoretically provide financing to the suppliers at lower rates than the suppliers' own banks.
Emerging markets clearly need the manufacturing liquidity of trade finance. Non-market participant banks have the prospect of financing companies in emerging markets through the extended relationship with their clients who buy from the emerging market sellers.
Banks need to have online interfaces with their clients. Trade finance is paper-intensive and technology is capable of digitizing the paper, performing automated matches between documents, such as purchase orders and invoices, and providing workflow routing for exception resolution and approvals. The deeper into the supply chain information flows that banks reach, the better they will know their customers and the trading partners of their clients.