The global letter of credit confirmation market size was valued at USD 4,128 million in 2021. It is expected to reach USD 5,577 million by 2030, growing at a CAGR of 3.4% during the forecast period (2022-2030).
A letter of credit is a type of financial instrument that ensures the buyer will pay the sellers during the transaction. It is employed in domestic and foreign trade markets to facilitate secured payment conditions and international transactions. Additionally, a bank or other financial institution serves as a third party between the buyer and seller, issues a letter of credit, and guarantees the delivery of monies upon fulfillment of specific promises detailed in the trade contracts. Additionally, a letter of credit confirmation transaction typically involves two banks: the bank of the buyer, which serves as the issuing bank, and the bank of the seller, which serves as the confirming bank.
The issuing bank, which also provides a letter of credit on behalf of the importer, guarantees the payments. Assuming that the terms and conditions for the current trade are met by issuing banks, the confirming bank also adds their confirmation to the letter of credit. Importers and exporters primarily use the letter of credit confirmation services to protect their trade documents in light of expanded global trade and reduce payment risk. Other significant growth factors in the market include the increase in demand for specialized trade finance solutions worldwide and regulatory support for the expansion of stringent rules for the secured letter of credit confirmation services.
As a result of the expansion of global trade, more and more importers and exporters are taking precautions to preserve the trade documents they possess to reduce the likelihood of incurring payment risks in the market. In addition, when there are trust concerns between an exporter and the issuing bank located in a nation with a high level of political or economic uncertainty, confirmation of a letter of credit becomes an important security mechanism. Therefore, merchants are gravitating toward using the letter of credit confirmation services, which has caused this trend to become one of the market's most important drivers of expansion.
As suppliers of letter of credit confirmation services have expanded their product lines in the industry, a rise in demand for personalized trade finance solutions is fueling the market's expansion. Additionally, exporters and importers are asking for a rapid letter of credit confirmation services better tailored to their needs from issuing and verifying institutions. And so, the market is expanding due to the increased demand for letter of credit confirmation services. To compete in the market, letter of credit confirmation suppliers are now implementing several model acts, rules, and regulations. Legal procedure trade agreements are new regulatory bodies' techniques that propel the expansion of secured letter of credit confirmation services in the market. As the market grows, making payments and conducting business is more straightforward.
The confirmation of the letter of credit takes place online, and numerous intermediaries are involved in the transaction between the bank issuing the credit and the bank receiving it worldwide. This, as a result, lead to fraudulent and cyberattacks on the network of the online trading mechanism, which results in data leakage, loss of trade information, and enormous trade amounts. Additionally, phony and fraudulent underlying papers provided by exporters and importers in the industry are becoming some of the primary issues hindering the market's growth for the credit confirmation letter.
It is anticipated that developments in technologies such as blockchain and distributed ledger technology (DLT) would have good potential for the letter of credit confirmation industry. As a result of these improvements in technology, providers of letter of credit confirmation can now construct a real-time digitalized letter of credit contracts, implement auto notifications alerting over trades, and improve the overall efficiency of their business operations in the market. In addition, the implementation and adoption of new technologies by companies that provide letter of credit confirmation services are anticipated to be profitable for the market in the coming years. This is done to streamline the time-consuming and traditional process of checking trade documents.
| Study Period | 2018-2030 | CAGR | 3.4% |
| Historical Period | 2018-2020 | Forecast Period | 2022-2030 |
| Base Year | 2021 | Base Year Market Size | USD 4,128 Million |
| Forecast Year | 2030 | Forecast Year Market Size | USD 5577 Million |
| Largest Market | Asia-Pacific | Fastest Growing Market | Europe |
The region-wise segmentation of the global letter of credit confirmation market includes North America, Europe, Asia-Pacific, and LAMEA.
The Asia Pacific is presumed to command the regional market while expanding at a CAGR of 5.71%. The confirming banks and the issuing banks in Asia-Pacific are continuing their pursuit of expansion and maintaining their concentration on the future development of trade finance services in the region. In addition, traders are extending their companies due to emerging economies and the changing legal environment in the region. As a result, these traders have become essential growth factors for the market for the letter of credit confirmation. Because the regional merchants continue to rely on the letter of credit services, it is anticipated that these services will continue to dominate during the period.
Europe will presumably hold USD 1,191 million, advancing at a CAGR of 2.2%. The letter of credit, which serves as the foundation for lending and facility mechanics in most European nations, is fronted by the issuing bank on behalf of the other European lenders. As a result, this is evolving into one of the primary trends in the area. However, as digital technologies proliferate, letter of credit confirmation service providers in Europe are heavily implementing blockchain and distributed ledger technology.
Consequently, this is becoming one of the market's limiting considerations for conventional letter of credit confirmation services. Conversely, some variables anticipated to present profitable prospects in the upcoming years include the traders' expectations for quicker open-account transactions and a more straightforward trade process via a letter of credit.
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The global letter of credit confirmation market is classified across the L/Cs type, end-user, and region.
According to the L/Cs type, the segments are sight L/Cs and usance L/Cs.
The sight L/C section will presumably hold the largest market share, expanding at a CAGR of 2.87%. A sight letter of credit attests to an international commerce transaction's payment for products and services. The payment is made to the market's confirming banks and is given to financial institutions to verify the necessary documentation. As soon as the conditions of the letter of credit are satisfied, businesses providing it are also required to pay the agreed-upon sum of money.
Processing time for payments made through sight letters of credit is typically 72 hours or 3 business days. To complete payment by sight letter of credit, you must have the necessary paperwork, including proof of shipment and delivery of the buyer's purchased goods. Sight payment systems provide immediate and prompt payment advantages, and dealers in the market employ them extensively. The instant payment solutions for the letter of credit confirmation that are evolving into significant market trends are being developed by the issuing and confirming institutions. In addition, sight payments allow for prompt payment to be made to the seller following the delivery of the goods, which helps the market expand.
The usance L/C section will hold the second-largest share. When the customer and seller are in different nations, a commercial letter of credit known as use or deferred payment is given. It gives the buyer additional time before the importer's bank must be paid. The postponed payments are finalized when the relevant documentation is presented to the involved parties during the trade. Deferred payments must also be processed 60 days from the date the invoices or transport documents are released to complete the transaction.
Deferred payments are often described using the conventional procedure, and the transactions take two to three months to complete. The dealers are moving toward instant payment alternatives because of this lengthy period. As a result, it is quickly emerging as one of the key trends in the market for letters of credit confirming payment. Additionally, this payment mechanism contributes to the long-term trust that buyers & sellers who engage in international commerce transactions develop. Additionally, because payment must be made within a minimum of two months, it enables purchasers to import items at relatively reduced financing costs. These are, thus, a few of the market's drivers of deferred payment growth.
Per the end-users, the segments are small, medium-sized, and large enterprises.
The section of large enterprises will presumably hold the largest market share, expanding at a CAGR of 2.91%. Large enterprises are huge, corporate-controlled businesses that have 500 or more employees. These sizable businesses frequently rely on specialized trade finance solutions catered to their requirements. These big businesses are also given supply chain financing, letter of credit issuance and confirmation, shipping guarantee, import loans, invoice financing, and other similar trade finance services.
Large corporations from various industries, including healthcare, media & technology, electricity & utilities, and others, have recently been the most significant users of letter of credit services. Large enterprises in these areas do extensive commerce and produce superior revenue levels. As a result, it is anticipated that the confirming banks and issuing banks will give the attractive potential for developing products and services and providing tailored offers within this area.
The medium-sized enterprises' segment will presumably hold the second-largest share. Medium-sized businesses are autonomous businesses that manage their own income and assets. Expanding medium-sized businesses significantly contributes to emerging economies in this constantly evolving technology field. In the future, enterprises in this area will likely boost output and diversify their markets by doing business internationally. This will be a crucial driver of market growth.
Medium-sized firms encounter challenges when trying to secure funding from different banks and financial organizations on the market due to the lack of collateral, credit history, and guarantees. These business sectors support both national and international trade market expansion and economic growth. Therefore, substantial prospects exist for banks and other financial institutions offering trade finance services to extend their reach to medium-sized firms in the future.
