Cornelius Coetzee, Country Manager for Verto South Africa.

As global trade evolves, small and medium-sized enterprises (SMEs) face significant hurdles in accessing international markets. Fintech innovations are levelling the playing field, enabling SMEs in Africa and around the world to overcome financial and logistical barriers and participate more effectively in global trade, writes Cornelius Coetzee, Country Manager for Verto South Africa.

Global trade is no longer the exclusive domain of large corporations and SMEs are increasingly stepping onto the global stage, driven by the desire to expand their markets and tap into new growth opportunities. Yet, many SMEs encounter formidable challenges such as limited access to finance, complex payment systems, and inadequate infrastructure.

Securing capital remains a major challenge for SMEs, with traditional financial institutions often viewing them as high-risk borrowers. Even when credit is available, high interest rates and stringent repayment terms can be prohibitive. An unsecured debt of R300,000 in South Africa, paid over 72 months, for instance, can result in a total exposure of about R670,000 - a significant burden for SMEs without collateral.

Moreover, traditional cross-border payment processes are slow, unclear and expensive, with hidden fees and long settlement times. This is exacerbated by unfavourable foreign exchange rates, with fees often exceeding 4% of the principal value, and settlement lead times of three to five days. These inefficiencies can hinder SMEs’ ability to compete effectively in global markets.

Inadequate infrastructure further complicates global trade for SMEs, with unreliable internet connections and inefficient logistics networks adding to their challenges. Additionally, import and excise duties, driven by the inability to achieve economies of scale, impact cost per unit sold and erode profit margins.

Fintech is revolutionising global trade by offering innovative solutions to these challenges, where simplified cross-border payment platforms streamline transactions, reduce costs, and increase transparency. Moreover, these digital payment solutions are helping to reduce transaction costs and increase the speed of cross-border payments, whereas traditional banking systems, with their layers of intermediaries and legacy processes, often impose significant costs on SMEs, both in terms of money and time.

Fintech companies, on the other hand, are leveraging technologies such as blockchain to offer more cost-effective and efficient alternatives. By utilising this technology and eliminating intermediaries, fintech solutions can reduce transaction fees and settlement times, allowing SMEs to keep more of their hard-earned revenue and reinvest it into their businesses.

The rise of fintech is not just a regional phenomenon, but is reshaping global trade patterns and enabling SMEs around the world to participate more effectively in international markets. In the past, global trade was dominated by a few large players, but the advent of digital platforms has democratised access, allowing SMEs to compete on a more level playing field.

One of the most significant trends in global trade is the shift towards e-commerce. The COVID-19 pandemic accelerated the adoption of online shopping and digital payment methods, breaking down many of the traditional barriers to international trade.

Today, an SME can establish an online presence, integrate a payment gateway, and begin selling to customers around the world - all with minimal upfront investment.

For African SMEs, inter-continental trade agreements are crucial. The lack of such agreements limits the ability of African SMEs to scale profitably within the continent despite vast opportunities. Improved legislation and regulations could enhance SMEs’ participation in the economy, promoting trade and economic gain.

While aiming to serve SMEs, fintechs will need to navigate the following regulatory challenges in South Africa:

• Licensing: Fintechs must secure appropriate licenses - Third Party Payment Providers (TPPP), Authorised Dealer in foreign exchange with limited authority (ADLA), and financial services providers (FSPs) - which restrict service scopes. Consulting third-party providers can help navigate this process.
• Regulatory compliance: Fintechs need to comply with risk management and compliance programmes, including Know Your Customer (KYC) procedures and Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) screening.
• Payment processors/Liquidity providers: Partnerships with payment processors require regulatory approval, proof of contractual agreements and due diligence.
• Banking partners: Fintechs must split operational and client funds into separate accounts and hold capital to cover potential losses.

For SMEs, choosing the right fintech provider means partnering with one that understands the regulatory landscape and can provide tailored solutions - a crucial element to success in global trade.

Fintech is revolutionising global trade by addressing financial and logistical barriers. As the digital transformation continues, fintech's role in shaping the future of global trade will only grow, offering new opportunities for SMEs to reach their full potential and drive economic growth worldwide.