Swiftly after his inauguration President Trump’s fondness for tariffs as a mechanism to make America ‘great again’ is clear. Unsurprisingly, international markets have been forced to respond to the proposals threatening to undo all the work done in the 21st century to make trade freer and smooth the movement of goods and capital around the world. 

These tariffs, aimed at encouraging US companies to ‘on-shore’ and relocate their operations back to the United States, come into conflict with the realities of global supply chains. Car manufacturing is a clear example. These recently proposed tariffs, (reversed at the time of writing), once applied to this complex process requiring parts to cross borders several times before complete assembly, would introduce price increases between $3,500 and $12,000. 

These proposed measures appear shocking, forcing talk of major supply chain realignment. However, taking a step back, they are just the latest manifestation of an ongoing trend; that despite global trade’s inexorable growth, borders are hardening - with economic friction the result. 

Bureaucracy is a well-recognised barrier to businesses across Europe and the UK, one not improved by Brexit. Within the EU, recent industry-led efforts to create a new ‘EU inc’ or 28th regime, a set of unified business laws that would supersede national regulatory regimes, demonstrates the untenable competitive limits placed by these burdens on businesses, even from within the same trading bloc. 

The fact is, the tide of globalised business – which requires the movement of capital, goods, information and talent across borders – has not been stifled by these realities. On the contrary, the global economy is still becoming increasingly interconnected. 

Over the past 50 years, the number of migrants living abroad has tripled to approximately 300 million in 2020. Global trade now represents approximately 60% of global GDP compared to 25% in 1970. And the value of (non-wholesale) cross-border payments has grown by roughly 5% annually for years and has become a market now worth $44 trillion globally.

Trade will also continue to globalise as the benefits of sourcing, manufacturing and selling abroad are too significant to ignore. This is further bolstered by the rapid emergence of B2B eCommerce. Cross-border payments, being a derivative of migration and trade, are expected to grow even faster in the future than they have in the past.

All of these effects follow long-term trends which are difficult to reverse, creating an opportunity for an expanding group of fintech companies designed to facilitate globalised trade – what I call Cross-Border Fintechs. 

When politics fails, fintech provides the solution

Cross-border fintechs group together the broad sweep of startups that use financial technology to reduce border-induced friction. They come in many different forms, so whilst startups like Onafriq that helps facilitate global payments probably come to mind, it also includes companies like Prewave that provides intelligent global supply chain management, or Deel, which helps companies manage teams and HR for teams working across the world or Fonoa, that allows businesses to assess their tax burdens in multiple jurisdictions. 

This label can be applied to a variety of technology solutions targeting the supply chain, risk management, payments, HR/payroll, taxes, savings/investments, compliance, and treasury management. 

Cross-border fintechs simplify complex regulatory, technological and fiscal regimes for their customers. They often provide their users with a single access point (typically an API) to a global network of local point solutions. They solve specific issues incurred by businesses crossing different geographies, standardising and bundling solutions into a single product ready for use everywhere. 

Even within the last decade, we have seen this category explode in importance - which is hardly a surprise. Borders, and the increasing problems that come from them, are here to stay, meaning the technology that can help businesses navigate these problems will only grow in importance. 

Succeeding in a bordered world 

While specific attention-grabbing measures may be enacted and withdrawn, it’s more important to pay attention to the wider international trend that’s underway. International businesses cannot afford to hope for a return to the norms of the previous decade – standing still without adapting their approach all but guarantees a competitive disadvantage.

The new realities of a bordered world provide a vital lesson for businesses operating today, as well as presenting opportunities for investors. As this trend continues, the businesses that will be the most successful will be the ones that have the greatest degree of adaptability to changing regulatory regimes. Equipped with sophisticated technology, either developed in-house, or sourced from cutting edge Cross-Border Fintechs, these companies will be able to expand quickly, stay compliant and attract talent seamlessly. 

Tariffs provide a firm example – the companies that will be least affected will be ones that can make smart and efficient decisions throughout their supply chain – decisions that are enabled by having technology that can give leaders visibility over risk and potential vulnerabilities.

For investors looking for high-growth opportunities, assessing potential portfolio companies in their ability to operate across borders will be critical for their long-term success. Companies that fail to adapt successfully - that rely on spreadsheets and manual data entry for tracking their supply chain and sustainability monitoring, for instance, will face significant risks in regulatory enforcement, not to mention becoming much less adaptable. 

Tech must do what politics is increasingly unwilling to do – provide the foundations for global business to thrive on. 

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