Electronic Finance.

• Author: Cattani, Carlo F.

A Cornerstone to Trade and Compete Internationally

Understanding e-finance trends helps both firms and trade development professionals to be more internationally competitive.

More and more, financial products are becoming available in electronic format, even in developing countries, faster than we could expect. A silent revolution started well before the Internet, and is moving beyond electronic payments. Changing the way financial services are used in international trade, electronic finance is forcing standardization, adding speed and reducing costs. These changes can help developing countries improve their international trade competitiveness.

A silent revolution

Our relationship with banks has changed so subtly over the past years that many of us have not realized that a silent revolution has been under way, moving us towards a digital economy. A large segment of banking and insurance "went digital" years ago. In both developing and industrialized countries, for example, credit card issuers and banks have used private electronic networks to transfer funds -- well before the Internet -- using service providers such as VisaNet, SWIFT and FedWire.

Trade-related financial and insurance products are being adapted to customers' needs. These go beyond payments and transfer of documents: loan requests, credit insurance, letter of credit confirmations and other documents can now be submitted in electronic form.

A changing banker-client relationship

These changes have an impact on the traditional banker-client relationship. As more services become digitalized, the interpersonal relationship between bankers and their clients evolves.

Lower costs

Using the Internet can reduce costs. According to UNCTAD, a traditional bank to-branch transaction costs no less than US$ 1; Automatic Teller Machines (ATM) reduce the cost to US$ 0.20; and an online transaction brings it down to US$ 0.01. Digital e-payment therefore appears ideal not only for large deals but also for small transactions.

The e-payment paradox

The Internet is characterized by open ness and information sharing; financial services are characterized by confidentiality. E-payment, which is an important part in the e-trade cycle, represents the ultimate goal of the transaction. The transaction remains at risk until money is received. E-payment and other financial services applications require state-of-the art security and encryption, which is to tally in opposition with the concept of free...