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THE CONDUCT OF RISK MANAGEMENT IN TRADE FINANCING PROCESSES: EXPLORING THE PROSPECTS AND CHALLENGES IN FINTECH ERA
Corresponding Author(s) : Safeza Mohd Sapian
Humanities & Social Sciences Reviews,
Vol. 8 No. 2 (2020): March
Abstract
Purpose of the study: To investigate the conduct of risk management in trade financing processes as well as to identify potential issues in risk management relating to fintech in trade financing. At the same time, this study had the opportunity to explore all possible prospects and challenges that this new era of digital could offer to the banking industry.
Methodology: The study employed an interview with experts for the means of data collection with the aim of gathering a wide range of information and opinion from the industry experts on the subjects of this study. The data collected from interview transcripts are analysed contextually based on thematic analysis and framework analysis.
Main Findings: The findings suggested risk management in trade financing processes is critical due to the nature of cross-country transactions and the current era of fintech has further escalated the risk exposure to fintech-related types of risk. Strategies to improve the current conduct of risk management in trade finance processes have been identified where opportunities and challenges can be managed effectively.
Applications of this study: Findings from this study will give valuable insights to the banking and finance industry’s practitioners, especially those who are directly involved in trade financing processes as well as the top management of the banks to further improve current risk management practices in particular catering for the new fintech era. This is essential in facing the wave of the 4th industrial revolution.
Novelty/Originality of this study: This study has contributed to the limited number of published studies in this area. Most importantly, the attempt to investigate the current practice of risk management and identify actual issues and problems in trade financing processes through financial technology platform has not been researched and explored before.
Keywords
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- Abdul Kader, N. (2015). Islamic Banking and Risk Management: Issues and Challenges. Journal of Islamic Banking and Finance Oct.- Dec. 2015, 64-70.
- Alt, R., Puschmann, T. (2012). The rise of customer-oriented banking - Electronic markets are paving the way for change in the financial industry. Electronic Markets, 22(4): 203–215. https://doi.org/10.1007/s12525-012-0106-2 DOI: https://doi.org/10.1007/s12525-012-0106-2
- Anderson, C. (2010). Presenting and Evaluating Qualitative Research. Am J Pharm Educ, 2010 Oct; 74(8): 141. https://doi.org/10.5688/aj7408141 DOI: https://doi.org/10.5688/aj7408141
- Aziz, M. I., Adnan, A. A., Afthanorhan, A., Foziah, H., Ishak, S. I., & Rashid, N. (2019). The influence of employer value proposition in talent demand towards talent shortage in the Malaysian Islamic banking institutions: A SEM approach. Management Science Letters, 9(6), 843-850. https://doi.org/10. 5267/j.msl.2019.3.004 DOI: https://doi.org/10.5267/j.msl.2019.3.004
- Balan, S., Otto, J., Minasian, E., Aryal, A. (2017). Data analysis of cybercrimes in businesses. Information Technology and Management Science, 20, 64–68. https://doi.org/10.1515/itms-2017-0011 DOI: https://doi.org/10.1515/itms-2017-0011
- Bamberger, K. A. (2009). Technologies of Compliance: Risk and Regulation in a Digital Age. Texas Law Review 88(4): 669–739.
- Berger, A.N. (2003). The economic effects of technological progress: Evidence from the banking industry. Journal of Money, Credit and Banking 35, 141–176. https://doi.org/10.1353/mcb.2003.0009 DOI: https://doi.org/10.1353/mcb.2003.0009
- Braun, V., Clarke, V. (2014). Using thematic analysis in psychology. Qualitative Research in Psychology, 3(2), 77-101. https://doi.org/10.1191/1478088706qp063oa DOI: https://doi.org/10.1191/1478088706qp063oa
- Cortet, M., Rijks, T., Nijland, S. (2016). PSD2 : The digital transformation accelerator for banks. Journal of Payments Strategy & Systems, 10(1): 13–27.
- Cuesta, C., Ruesta, M., Tuesta, D., Urbiola, P. (2015). The digital transformation of the banking industry (July): 1–10.
- Dalila, Latif, H., Jaafar, N., Aziz, I., & Afthanorhan, A. (2020). The mediating effect of personal values on the relationships between attitudes, subjective norms, perceived behavioral control and intention to use. Management Science Letters, 10(1), 153-162. https://doi.org/10.5267/j.msl.2019.8.007 DOI: https://doi.org/10.5267/j.msl.2019.8.007
- EXIM Bank (2019, July 28). Exim Bank: https://www.exim.com.my
- Gutierrez, C. (2019, August 1). Digital Transformation in Banking: New Challenges for a New Era.
- Gai, K., Qiu, M., Sun, X., Zhao, H. (2017). Security and privacy issues: A survey on fintech. Lecture Notes in Computer Science (Including Subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), pp. 236–247. https://doi.org/10.1007/978-3-319-52015-5_24 DOI: https://doi.org/10.1007/978-3-319-52015-5_24
- Gold, N.A., Kursh, S.R. (2017). Counterrevolutionaries in the financial services industry: Teaching disruption – A case study of Robo advisors and incumbent responses. Business Education Innovation Journal, 9, 139–146.
- Hawlitschek, F., Notheisen, B., Teubner, T., 2018. The limits of trust-free systems: A literature review on blockchain technology and trust in the sharing economy. Electronic Commerce Research and Applications. https://doi.org/10.1016/j.elerap.2018.03.005 DOI: https://doi.org/10.1016/j.elerap.2018.03.005
- IIF/McKinsey. (2018, August 29). The Future of Risk Management in the Digital Era.
- Kang, J., Human-Centric Computing and Information Sciences. (2018), 32 (8): 1-1. https://doi.org/10.1186/s13673-018-0155-4 DOI: https://doi.org/10.1186/s13673-018-0155-4
- Kim, J.J., Hong, S.P.(2015). A study on the biometric-based single sign-on system using FIDO (Fast Identity Online) in FinTech environments. International Journal of Applied Engineering Research 10, 41772–41775.
- Kim, Kyongjin, Hong, Sengphil, (2016). The data processing approach for preserving personal data in fintech-driven paradigm. International Journal of Security and Its Applications 10, 341–350. https://doi.org/10.14257/ijsia.2016.10.10.30 DOI: https://doi.org/10.14257/ijsia.2016.10.10.30
- Lavrov, R.V. (2011). Innovative financial technologies in banking: Essence, problems and opportunities for development. Actual Problems of Economics, 126, 221–229.
- Majid, N. A., Zainol, F. A., Wan Daud, W. N., & Afthanorhan, A. (2019). Cooperative entrepreneurship in Malaysian secondary schools: A review of current practices. Journal of Social Sciences Research, 5(3), 812-818. https://doi.org/10.32861/jssr.53.812.818 DOI: https://doi.org/10.32861/jssr.53.812.818
- Mays N., Pope C. (1996). Qualitative Research in Health Care. BMJ Publishing Group.
- Muhamed, N.A., Marzuki A.A. (2018). Will Fintech Disrupt Islamic Banks? in Extending the Boundaries of Islamic Finance. Editor Mohd Daud Bakar, et.al., USIM Press, pp.183-187.
- Nikiforova, T. (2017). The place of Robo-advisors in the UK independent financial advice market. Substitute or complement? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3084609 DOI: https://doi.org/10.2139/ssrn.3084609
- Okamura, T., Teranishi, I. (2017). Enhancing FinTech security with secure multi-party computation technology. NEC Technical Journal, 11, 46–50.
- Paul, S., Rudolph, B., Zech, S., Oehler, A., Horn, M., Wendt, S., Jentzsch, N. (2016). Neue finanztechnologien – Bankenmarkt in bewegung. Wirtschaftsdienst 96, 631–647. https://doi.org/10.1007/s10273-016-2028-7 DOI: https://doi.org/10.1007/s10273-016-2028-7
- Park, J., Park, J. (2017). Blockchain security in cloud computing: Use cases, challenges, and solutions. Symmetry (Basel) 9, 164. https://doi.org/10.3390/sym9080164 DOI: https://doi.org/10.3390/sym9080164
- Rabbani, M. R., Khan, S. (2020). FinTech, blockchain and Islamic finance: An extensive literature review. European Research Studies, 23(1), 348-367.
- Sia, K. S., Soh, C., Weill, P. (2016). How DBS Bank Pursued a Digital Business Strategy. MIS Quarterly Executive 15(2): 105–121. https://doi.org/10.1108/00251741111183852 DOI: https://doi.org/10.1108/00251741111183852
- Trelewicz, J.Q. (2017). Big data and big money: The role of data in the financial sector. IT Professional, 19, 8–10. https://doi.org/10.1109/MITP.2017.45 DOI: https://doi.org/10.1109/MITP.2017.45
- Tao, Q., Dong, Y., Lin, Z. (2017). Who can get the money? Evidence from the Chinese peer-to-peer lending platform. Information Systems Frontiers 19, 425–441. https://doi.org/10.2139/ssrn.2863360 DOI: https://doi.org/10.2139/ssrn.2863360
- World Trade Organization. (2019, July 18). https://www.wto.org/english/thewto_e/whatis_e/in brief_e/inbr_e.pdf
- World Trade Organization. (2016). Trade Finance and SMEs: Bridging the Gaps in Provision. Geneva: WTO. https://doi.org/10.30875/3d984cea-en DOI: https://doi.org/10.30875/3d984cea-en
References
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Alt, R., Puschmann, T. (2012). The rise of customer-oriented banking - Electronic markets are paving the way for change in the financial industry. Electronic Markets, 22(4): 203–215. https://doi.org/10.1007/s12525-012-0106-2 DOI: https://doi.org/10.1007/s12525-012-0106-2
Anderson, C. (2010). Presenting and Evaluating Qualitative Research. Am J Pharm Educ, 2010 Oct; 74(8): 141. https://doi.org/10.5688/aj7408141 DOI: https://doi.org/10.5688/aj7408141
Aziz, M. I., Adnan, A. A., Afthanorhan, A., Foziah, H., Ishak, S. I., & Rashid, N. (2019). The influence of employer value proposition in talent demand towards talent shortage in the Malaysian Islamic banking institutions: A SEM approach. Management Science Letters, 9(6), 843-850. https://doi.org/10. 5267/j.msl.2019.3.004 DOI: https://doi.org/10.5267/j.msl.2019.3.004
Balan, S., Otto, J., Minasian, E., Aryal, A. (2017). Data analysis of cybercrimes in businesses. Information Technology and Management Science, 20, 64–68. https://doi.org/10.1515/itms-2017-0011 DOI: https://doi.org/10.1515/itms-2017-0011
Bamberger, K. A. (2009). Technologies of Compliance: Risk and Regulation in a Digital Age. Texas Law Review 88(4): 669–739.
Berger, A.N. (2003). The economic effects of technological progress: Evidence from the banking industry. Journal of Money, Credit and Banking 35, 141–176. https://doi.org/10.1353/mcb.2003.0009 DOI: https://doi.org/10.1353/mcb.2003.0009
Braun, V., Clarke, V. (2014). Using thematic analysis in psychology. Qualitative Research in Psychology, 3(2), 77-101. https://doi.org/10.1191/1478088706qp063oa DOI: https://doi.org/10.1191/1478088706qp063oa
Cortet, M., Rijks, T., Nijland, S. (2016). PSD2 : The digital transformation accelerator for banks. Journal of Payments Strategy & Systems, 10(1): 13–27.
Cuesta, C., Ruesta, M., Tuesta, D., Urbiola, P. (2015). The digital transformation of the banking industry (July): 1–10.
Dalila, Latif, H., Jaafar, N., Aziz, I., & Afthanorhan, A. (2020). The mediating effect of personal values on the relationships between attitudes, subjective norms, perceived behavioral control and intention to use. Management Science Letters, 10(1), 153-162. https://doi.org/10.5267/j.msl.2019.8.007 DOI: https://doi.org/10.5267/j.msl.2019.8.007
EXIM Bank (2019, July 28). Exim Bank: https://www.exim.com.my
Gutierrez, C. (2019, August 1). Digital Transformation in Banking: New Challenges for a New Era.
Gai, K., Qiu, M., Sun, X., Zhao, H. (2017). Security and privacy issues: A survey on fintech. Lecture Notes in Computer Science (Including Subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), pp. 236–247. https://doi.org/10.1007/978-3-319-52015-5_24 DOI: https://doi.org/10.1007/978-3-319-52015-5_24
Gold, N.A., Kursh, S.R. (2017). Counterrevolutionaries in the financial services industry: Teaching disruption – A case study of Robo advisors and incumbent responses. Business Education Innovation Journal, 9, 139–146.
Hawlitschek, F., Notheisen, B., Teubner, T., 2018. The limits of trust-free systems: A literature review on blockchain technology and trust in the sharing economy. Electronic Commerce Research and Applications. https://doi.org/10.1016/j.elerap.2018.03.005 DOI: https://doi.org/10.1016/j.elerap.2018.03.005
IIF/McKinsey. (2018, August 29). The Future of Risk Management in the Digital Era.
Kang, J., Human-Centric Computing and Information Sciences. (2018), 32 (8): 1-1. https://doi.org/10.1186/s13673-018-0155-4 DOI: https://doi.org/10.1186/s13673-018-0155-4
Kim, J.J., Hong, S.P.(2015). A study on the biometric-based single sign-on system using FIDO (Fast Identity Online) in FinTech environments. International Journal of Applied Engineering Research 10, 41772–41775.
Kim, Kyongjin, Hong, Sengphil, (2016). The data processing approach for preserving personal data in fintech-driven paradigm. International Journal of Security and Its Applications 10, 341–350. https://doi.org/10.14257/ijsia.2016.10.10.30 DOI: https://doi.org/10.14257/ijsia.2016.10.10.30
Lavrov, R.V. (2011). Innovative financial technologies in banking: Essence, problems and opportunities for development. Actual Problems of Economics, 126, 221–229.
Majid, N. A., Zainol, F. A., Wan Daud, W. N., & Afthanorhan, A. (2019). Cooperative entrepreneurship in Malaysian secondary schools: A review of current practices. Journal of Social Sciences Research, 5(3), 812-818. https://doi.org/10.32861/jssr.53.812.818 DOI: https://doi.org/10.32861/jssr.53.812.818
Mays N., Pope C. (1996). Qualitative Research in Health Care. BMJ Publishing Group.
Muhamed, N.A., Marzuki A.A. (2018). Will Fintech Disrupt Islamic Banks? in Extending the Boundaries of Islamic Finance. Editor Mohd Daud Bakar, et.al., USIM Press, pp.183-187.
Nikiforova, T. (2017). The place of Robo-advisors in the UK independent financial advice market. Substitute or complement? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3084609 DOI: https://doi.org/10.2139/ssrn.3084609
Okamura, T., Teranishi, I. (2017). Enhancing FinTech security with secure multi-party computation technology. NEC Technical Journal, 11, 46–50.
Paul, S., Rudolph, B., Zech, S., Oehler, A., Horn, M., Wendt, S., Jentzsch, N. (2016). Neue finanztechnologien – Bankenmarkt in bewegung. Wirtschaftsdienst 96, 631–647. https://doi.org/10.1007/s10273-016-2028-7 DOI: https://doi.org/10.1007/s10273-016-2028-7
Park, J., Park, J. (2017). Blockchain security in cloud computing: Use cases, challenges, and solutions. Symmetry (Basel) 9, 164. https://doi.org/10.3390/sym9080164 DOI: https://doi.org/10.3390/sym9080164
Rabbani, M. R., Khan, S. (2020). FinTech, blockchain and Islamic finance: An extensive literature review. European Research Studies, 23(1), 348-367.
Sia, K. S., Soh, C., Weill, P. (2016). How DBS Bank Pursued a Digital Business Strategy. MIS Quarterly Executive 15(2): 105–121. https://doi.org/10.1108/00251741111183852 DOI: https://doi.org/10.1108/00251741111183852
Trelewicz, J.Q. (2017). Big data and big money: The role of data in the financial sector. IT Professional, 19, 8–10. https://doi.org/10.1109/MITP.2017.45 DOI: https://doi.org/10.1109/MITP.2017.45
Tao, Q., Dong, Y., Lin, Z. (2017). Who can get the money? Evidence from the Chinese peer-to-peer lending platform. Information Systems Frontiers 19, 425–441. https://doi.org/10.2139/ssrn.2863360 DOI: https://doi.org/10.2139/ssrn.2863360
World Trade Organization. (2019, July 18). https://www.wto.org/english/thewto_e/whatis_e/in brief_e/inbr_e.pdf
World Trade Organization. (2016). Trade Finance and SMEs: Bridging the Gaps in Provision. Geneva: WTO. https://doi.org/10.30875/3d984cea-en DOI: https://doi.org/10.30875/3d984cea-en