Fintech vs. traditional trade: transition - BAFT · Fintech providers and financial institutions are moving beyond a reluctance to partner up and recent years has seen a more collaborative

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Fintech vs. traditional trade: surviving the digital transition

BPO develOPments • RmB & tRade • BlOckchain • digital tRade

Sibos Special Issue • September 2016

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BAFT Europe Bank to Bank Forum

Register today at www.baft.org/Madrid.

2017January 16 – 18, 2017Madrid, Spain

Opening Address/Keynote Speakers:• Jeremy Wilson, Vice Chairman, Corporate Banking, Barclays• Tracy Paradise, Head of AML Strategy and Architecture, HSBC and the Executive Secretary, The Wolfsberg Group

Featured sessions include:• Fintech sessions including payments and trade use cases• Correspondent banking and de-risking sessions• Transaction Banking Global Leaders discuss issues affecting the industry today and tomorrow.

Plus, back for its third year, the Global Finance awards on Wednesday, January 18

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S I B O S S p e c i a l e D i T i O NContents

Executive EditorEmma HughesTel: +44 (0)20 7827 6449Email: [email protected]

News EditorSean KeatingTel: +44 (0)207 779 8171Email: [email protected] Americas Editor Jason TorquatoTel: +1 212 224 3442Email: [email protected]

Reporter (Europe, Middle East, Africa)Merle Crichton Tel: +44 (0)20 7779 8004Email: [email protected]

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BAFT Europe Bank to Bank Forum

Register today at www.baft.org/Madrid.

2017January 16 – 18, 2017Madrid, Spain

Opening Address/Keynote Speakers:• Jeremy Wilson, Vice Chairman, Corporate Banking, Barclays• Tracy Paradise, Head of AML Strategy and Architecture, HSBC and the Executive Secretary, The Wolfsberg Group

Featured sessions include:• Fintech sessions including payments and trade use cases• Correspondent banking and de-risking sessions• Transaction Banking Global Leaders discuss issues affecting the industry today and tomorrow.

Plus, back for its third year, the Global Finance awards on Wednesday, January 18

BAFT17_Gobal-Europe_EuroMoney.indd 1 9/1/16 10:50 AM

14Features & Analysis

Editor’s Comment . . . . . . . . . . . . 5

News in Brief

Supply chain finance market moves . . . . . . . . . . . . .6

News in Depth Invstr: a journey from banking to Fintech . . . . . . . .9

BPO: will slow and steady win the race? . . . . . . . 10

Bank collaboration with P2P platforms on

the up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

21st century manufacturing’s missing link – digitised financial supply chains

Ashutosh Kumar, regional head, transaction banking, India and South Asia, Standard Chartered, looks at how the digitisation of financial ecosystems impacts today’s production revolution .

trade’s digital future: let battle commence

With the amount of Fintech companies on the rise, can banks afford to miss out on the digital transition?

Blockchain: collaboration or competition?

Will the hyped benefits of blockchain – cost, speed and increased volume of trade finance transactions – be a driving force or will a race for technological market share hinder development?

Using digital trading platforms to access ripe new markets

Oliver Everett, CEO, The Commonwealth Enterprise and Investment Council (CWEIC), explains how corporates of all sizes can use technology to make sure they get their piece of the pie .

the use of Renminbi in trade finance

Despite China’s continued economic slowdown, the internationalisation of its currency, the Renminbi (RMB), continues to make good progress: over 1,800 financial institutions are now using the RMB for payments with China and Hong Kong .

Progressing at pace: trade digitisation moves forward

Bank’s traditional trade finance businesses face potentially disruptive threats, as the demand for digital instruments that can take over from archaic paper documentation is becoming more apparent than ever .

a new world of increased regulatory scrutiny and fintechs onslaught

For banks providing trade finance products, their time in the sun is over and the landscape has been engulfed by dark clouds . From its position as poster child of politicians, the banking community, regulators and governments alike; the trade business has temporarily slipped from favour .

shifting to multi-banks platforms makes a world of difference around the globe

Coping with all the uncertainties in international trade can be hard enough without the day-to-day difficulties of managing credit lines and guarantees provided by multiple banks, finds Simon Streat, VP strategy, product and marketing, Bolero International .

Fintech adoption gathers steam

Fintech providers and financial institutions are moving beyond a reluctance to partner up and recent years has seen a more collaborative approach than before . Jason Torquato, Americas Editor, examines whether this trend is here to stay .

turning financial messaging data into business profit

André Casterman, chief marketing officer at INTIX investigates the latest challenge for financial institutions: how to turn messaging data into profit .

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icc: closing the trade finance gap

As many as 61% of the respondents to the International Chamber of Commerce (ICC) 2016 Global Survey on Trade Finance reported a global shortage of trade finance, while over 90% cited the complexity of compliance requirements as a chief barrier to its provision . ICC Banking Commission examines the measures that can be taken to close the trade finance gap and address unmet demand .

BaFt: trade-based money laundering – time for a re-think

When examining the possible approaches to mitigating trade-based money laundering (TBML) risks, the ability of banks to identify and control TBML is often overstated, and the understanding of trade-based money laundering versus documentary trade finance is often lost . It is time for a re-think .

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September 2016 • SIBOS Special Edition4



News in depth: Title

www.tradefinanceanalytics.com 4www.tradefinanceanalytics.com

introducing…The borrower briefingYour comprehensive bi-weekly review of the latest trade finance loan activity.

For more information about Trade Finance Borrowing Briefings, please contact:

[email protected] +44 20 7779 8721

Features include:• Pricing commentary• deal data: identify key trends in pricing, loan tenor and activity• headline deals with links to latest news coverage• deal commentary from borrowers and lenders• hear about upcoming opportunities• keep on top of market activity with the latest industry news and analysis

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S I B O S S p e c i a l e D i T i O NEditor’s comment

Emma HughesExecutive Editor

Trade and supply chain finance have historically been considered the laggards of digital

development, with many opting for paper-based documentation over technological solutions while their financial counterparts moved online.

During the last year, however, trade has come into its own, and is now considered the driving force behind the development of new solutions that are set to remove the drawbacks of manual processing.

Blockchain is a word that was much bandied at last year’s Sibos in Singapore. Back then, for all the noise that was being made about this technology, a large majority were unsure of exactly what it was – and indeed, what it can do.

Fast forward 12 months and Barclays and Israeli start-up, Wave are claiming the world’s first real live trade financing deal using blockchain technology.

And they’re not the only ones: on August 10, R3 and a consortium of banks announced separate proof of concepts for essentially the same thing – automated letters of credit. Sean Keating, News Editor, discusses the new technology and the pace of progress on pages 24-25.

Another solution that is gathering pace is the Bank Payment Obligation (BPO), which was originally launched in 2014. Despite being around for the best part of two years, the BPO has seen slow but steady adoption – owing mainly to a need for further education regarding its implementation, usage and benefits.

Despite this lower-than-anticipated progress, another first was marked in August when Commerzbank London and UniCredit closed the first BPO live transaction in the UK. Completed for Heraeus Metal Processing, the transaction covers the export of chemicals from Ireland to Italy.

To read an interview with the two banks involved, head to pages 10-11.

Advancements have also occurred in the internationalisation of the Renminbi which, despite China’s continued economic slowdown, has made good progress with over 1,800 financial institutions now using the RMB for payments with China and Hong Kong.

SWIFT, the organiser of Sibos, highlights how approval from the International Monetary Fund to add the RMB to its group of reserve currencies, and the launch of China’s Cross-Border Inter-Bank Payments System, have marked a milestone in the progression of this currency on pages 29-31.

The cover feature (pp20-22) for this Sibos special supplement issue considers the Fintech movement on a wider scale, looking into the changes, partnerships and considered investment that must take place if traditional trade finance bankers are to exist in future.

As John Chambers, the executive chairman and former CEO of American technology giant, Cisco, described; in this new wave of digital evolution, if you don’t innovate fast, you won’t survive. l

“If you don’t innovate fast, disrupt your industry, disrupt yourself, you’ll be left behind”– John Chambers, Executive Chairman, Cisco


S I B O S S p e c i a l e D i T i O NNews in brief: Market moves



For more Market moves news visit: www.tradefinanceanalytics.com

Wells Fargo expands UK capital finance team

In addition, Wells Fargo Capital Finance in the UK

has hired Tom Weedall as loans origination director.

Wells Fargo Capital Finance is a UK-focused asset-based lending business, offering lending, technology finance and supply chain finance to companies in the UK, the US and Canada.

It has grown its portfolio in recent years, acquiring the

Burdale Financial Holdings portfolio from Bank of Ireland in 2012 and more recently General Electric’s US commercial distribution finance business and part of its corporate finance unit.

Weedall will be based in Manchester, reporting to Steven Chait, managing director and head of EMEA at Wells Fargo Capital Finance. Weedall joins from GE Capital, where he was a regional sales director, responsible for originating and closing deals in the north of England. He had been at GE Capital since 2006.

Gerber Finance adds McGarry as chief credit officerKevin McGarry has been

appointed chief credit officer at Gerber Finance. In his new role, McGarry will be responsible for managing the loan portfolio, in particular credit quality and client retention.

He joins from First Capital LLC, where he was president of the factoring division and northeast regional manager of asset-based lending. He will be located in Gerber’s New York office and report to Jennifer Palmer, Gerber president.

Encompass hires former Sony exec as ScF director

US-based Encompass Supply Chain Solutions

has appointed Sony executive Stacy Golden as director of supply chain and trade compliance.

Golden will be responsible for integrating and standardising supply chain operations to maximise revenue growth and cost production. She will also onboard new clients for 3PL and 4PL programmes and monitor performance metrics.

Golden’s role will further involve the regulatory and policy compliance procedures to ensure alignment with US customs and other government agencies involved in the company’s global importing and exporting business.

Prior to Encompass, Golden was director of operations for Sony Electronics for six years, based in Texas. Joining Sony back in 1999 she held various senior roles in compliance, procurement, vendor relations and supply chain.

GLI Finance appoints cOOGLI Finance has

appointed Russell Harte as chief operating officer, a new role within the company, effective August 1.

Harte is a chartered accountant with general management, operations and risk management experience. He will report to CEO, Andy Whelan, who said that the appointment is part of a wider move to improve the operations and risk management functions within GLI.

Prior to joining GLI Finance, Harte was CFO of Standard Bank Jersey. Before that he worked as finance director of Liberty Holdings, a JSE listed long-term insurer.

GLI Finance is a specialist provider of finance to small and medium sized enterprises (SMEs). Loans are provided to SMEs through a variety of finance platforms, including UK and European invoice discounting, supply chain finance and global trade finance.

DS-Concept hires Xie as china sales managerDS-Concept China has

hired Roy Xie as sales manager in a bid to support SMEs seeking export factoring and trade finance in mainland China.

Xie joins DS-Concept with more than 10 years’ experience in supply chain management and trade finance. He most recently worked for Hang Seng Bank, which is part of the HSBC group. Prior to that he worked as a supply chain specialist for multiple consumer electronics manufacturers in China.

Wells Fargo launches supply chain origination team

Wells Fargo has launched a new

supply chain finance originations team following the acquisition of GE Capital’s commercial distribution finance business.

The team will be headed by John Schmidt, who will be responsible for channel finance, supplier finance and sales financing with the aim of providing working capital loans. Schmidt will report to Scott Diehl, head of global capital solutions.

The announcement follows

the addition of Daniel Pfeiffer, who will report to Schmidt as managing director of the supply chain finance sales division.

Pfeiffer joins from San Francisco-based software company, Taulia, where he was global head of supply chain finance for two years.

Prior to that, he worked at Citibank for 11 years, most recently as a director for treasury and trade solutions where he was responsible for the cash management and trade business for various Caribbean countries.

ExWorks Capital, a US-based export, import

and specialist finance solutions provider, has appointed Keith Kirkland as senior director. He will be based at the company’s new Atlanta office. Kirkland joins from Curve Commercial, a fellow Atlanta-based supply chain and trade solutions company. Kirkland will be responsible for the business development efforts of ExWorks’ export, import, purchase order and working capital financing solutions throughout southern US.

Kirkland’s experience includes senior roles with Heller Financial, SunTrust Bank and Presidential Financial, where he provided asset-based lending, receivables financing, trade finance and other working capital solutions to growing middle-market companies.

ExWorks Capital offers financing solutions to businesses using its own capital as well as by leveraging its delegated authority granted by both the SBA and US Ex-Im Bank.

ExWorks expands new atlanta office

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S I B O S S p e c i a l e D i T i O NNews in brief: Market moves


Bolero makes two new asia appointmentsRoss Wilkinson, has been

appointed manager for Bolero’s newly opened office in Shanghai, adding to his responsibilities as head of Bolero’s Hong Kong operations. The new office will manage relationships with Bolero’s key clients in mainland China which include Bank of China.

The company has also appointed Neil Johnson as head of business development for Southeast Asia based in Singapore. Johnson brings strong contacts within the banking community as well as a background in logistics, supply chain and transportation.

TrustBills appoints ex Unicredit global trade headFormer global trade

head at UniCredit, Markus Wohlgeschaffen, has joined receivables auction platform TrustBills as senior vice president and head of product management, based in Hamburg, Germany.

Wohlgeschaffen brings over

30 years of experience in trade and trade finance, serving as global head of trade products at HypoVerinsbank UniCredit responsible for product development and product management for all traditional (letters of credit, collections and guarantees) and supply chain finance products.

He was also chairman of BAFT’s Global Trade Industry Council (GTIC), as well as a member of the advisory board of the ICC Banking Commission and a consultant for the Italian export credit agency, Sace.

Tawreeq Holdings appoints head of payables and structured finance

Shariah-compliant supply chain finance solutions

provider Tawreeq Holdings has appointed Sinan Oczan as director of payables and structured finance.

From 2013 to June 2015, Oczan was UKEF regional director for Europe, MENA and Central Asia based in Istanbul. Prior to that he held various trade finance roles at CNH Industrial from 2007 onwards, rising to head of trade finance APAC and head of financial services Turkey.

Deutsche announces new supply chain eMea headDeutsche Bank has

appointed Anil Walia, former global head of supply chain finance at RBS, as head of financial supply chain EMEA (ex Germany).

In his new role, he reports to Luca Corsini, head of trade finance EMEA.

Walia replaces Alexander Mutter.

Walia had been with RBS since 2007, joining as director for trade and supply chain finance Europe, before becoming EMEA global head of trade and supply chain finance in 2010. His previous employers include ABN Amro, JP Morgan and Arab Banking Corporation (ABC).

Bibby makes new UK appointmentsBibby Financial Services

has appointed Mary Sharp as commercial director for the northern UK and Joanna Cashmore as head of sales for Scotland.

Sharp has previously held sales and operations management roles at Lloyds Bank and

PricewaterhouseCoopers. She has over 27 years’ experience in invoice finance and will head-up at team of 100 in Scotland and the North of England.

Cashmore joined Bibby in 2010 from Lloyds Commercial Finance where she worked in the asset finance team.

Vira joins Tungsten FinancePrabhat Vira has been

appointed president of Tungsten Finance, the supply chain finance arm of Tungsten Corporation.

Vira was most recently global head of strategic transformation and North America head of trade and receivables finance at HSBC. Prior to HSBC he headed Americas transaction business at RBS and Citizen Bank.

In his new role, Vira will work closely with Richard Hurwitz, CEO of Tungsten Corporation, to develop a “100 day plan,” which will shape his strategy for business. Vira will lead Tungsten’s supply chain and receivables finance offering and will build on the launch of the “early payments” service.

Specialist working capital solution provider, Demica

has appointed Angel Blanco as origination director, Enrique Jimenez as senior supply chain finance origination director and Marc Wolf as origination director.

Blanco will be responsible for originating receivables finance, trade receivables securitisations and supply chain finance programmes, mainly

for Spanish and Portuguese multinational corporates and financial institutions. He joins from Santander Global Banking and Markets, where he was most recently head of receivables. Blanco will be co-located in Spain and London.

Jimenez also joins from Santander, where he was head of supply chain finance and trade, and a member of the executive committee of

Santander GTB Continental Europe. He will be tasked with seeking receivables securitisation opportunities and originating and building supply chain finance programmes across Europe. Jimenez will be based in London but will have a broad geographic focus.

As origination director, Wolf will be responsible for originating receivables securitisation and supply

chain finance programmes for German and multinational corporates, and financial institutions. He previously held the position of executive director, securitisation at Credit Agricole CIB. He will be based in London and will focus on Northern Europe.

All three hires will report to Tim Davies, head of origination at Demica.

Demica hires three for origination team

For more supply chain finance market moves, visit tradefinanceanalytics.com



News in depth: Fintech Q&aS I B O S S p e c i a l e D i T i O N

trade finance, which has been fairly slow on the uptake of digital solutions, is now going through a transition. What types of solutions are now available to this side of finance and what benefits do they provide?

Fintech and the insurance technology sector offer the opportunity to improve the processes involved in trade finance.

Blockchain technology could ease the secure transfer of monies, but also be a lynchpin of further document transfers associated with trade; from initial contract signatures to bills of lading, customs declarations, and so on.

This, combined with tracking (logistics), regulatory and, most importantly, ever-changing tax rules is something that we believe would significantly attract a lot of interest.

Why do you think it’s important that trade finance goes through this change, considering it has historically performed effectively using paper-based solutions?

The arrival of nimble Fintech means that every single part of trading will be disrupted. The finance industry as a whole will become a more competitive sphere, which will be of benefit to all, other than those offering a strong enough service to survive.

Fintechs are now beginning to increase in number, leading some to question whether they will take over the role of trade finance bankers in future. What are your thoughts on this?

Most Fintech firms are not innovating. They are using new technology to provide the same services as the banks. This is not true disruption.

Disruption will come when all financial information and economic power passes

from the banks to the consumers, when we are all empowered as individuals to take charge of our financial future, and when financial intermediation is replaced by peer to peer networks that harness the power of collaboration to create collective value.

This has not happened yet, but it will.

You were managing director at deutsche Bank for 11 years – what made you decide to establish a Fintech company?

Establishing invstr was possibly the biggest risk of my life. I realised that if we could empower everyone in the world with the information they needed to take charge of their financial future then we could build a much more sustainable and wealthier society.

Everything else being equal, the more that information is shared, the lower the volatility of the markets and the higher the investment and growth in the economy.

The benefits of pursuing this mission

were enormous. The costs of doing so, with the advent of social technology and mobile phones, had become significantly lower. It was a fantastic opportunity.

some will argue that traditional banks aren’t ready for a digital revolution. indeed, your solution is aimed at millennials. What do you think the more traditional bankers have to do to change?

Fintech is innovating already to combat the issues millennials find with dealing with their financial situation. It is enabling a whole generation to manage money in the way they want to, rather than being constrained by what has gone before.

On the other hand, traditional bankers are still suffering from trust issues associated with the 2008 crisis, and are burdened with legacy technology that is too old to enable innovation, but that’s also too complex to simply replace and start anew overnight.

So, these bankers will need to drive complete change in their business models to keep pace with those more nimble and sharp Fintech businesses.

What’s next on the Fintech agenda – how will it continue to develop the financial services sector, in particular in trade finance?

Fintech businesses will begin to own more of the finance markets globally over the next decade, delivering more consumer-driven innovation far faster than established finance companies.

Those legacy players will try and keep pace, with an extreme battle for consumers and revenues occurring as a result – the establishment versus the disruptors.

On top of this, the tech giants like Apple and Alphabet will tighten their grip on the finance sector, as we have seen the start of with payment services such as Apple Pay. l

Invstr: a journey from banking to FintechTrade Finance speaks with Kerim Derhalli, ceO and founder of Fintech start-up, invstr, about his Fintech journey, the digital revolution and the future of trade finance.

The arrival of nimble Fintech means that every single part of trading will be disrupted.

kerim derhalli, CEO and founder, invstr


News in depth: BpOS I B O S S p e c i a l e D i T i O N

Heraeus Metal Processing, an Ireland-

based chemicals company, and its Italian customer, Ecocat Italia, an automotive parts producer, closed a bank payment obligation (BPO) live transaction with Commerzbank and UniCredit on August 19 this year. The transaction covers the export of chemicals from Ireland to Italy.

What’s interesting about the transaction is that it was processed by Commerzbank’s London office, which deals with all business in Ireland, meaning this is the first BPO live transaction to be completed in the UK.

The BPO is an irrevocable and autonomous undertaking by UniCredit to pay on demand, or on maturity, a certain amount to Commerzbank following successful electronic checks on a series of data previously agreed by the counterparties using SWIFT’s Trade Services Utility platform.

It was first implemented in 2014, promising to provide all the benefits of traditional letters of credit (LCs) but in a secure, automated environment. In short, doing away with the paper-based side of trade.

According to Angela Koll, product manager trade at Commerzbank, since the BPO launched, adoption has been slow but steady. Indeed, the UK’s first BPO has only

recently been signed, which is surprising considering London’s reputation as one of the world’s largest financial hubs.

UniCredit’s head of trade finance products, Raphael Barisaac, explained to Trade Finance that the reason behind this is that even in mature financial markets – like London – the level of technological adoption in the banking industry has been sluggish.

Koll explained further that its focus has remained on educating correspondent banks and corporate clients about the extent of the benefits of the BPO – both in trade finance and in terms of supply chain management.

UniCredit’s Barisaac agreed that uptake of the BPO has so far been gradual among corporates – held back by a number of factors.

“More coverage is required – both in terms of the number of banks offering BPOs and the number of countries where the solution is available – and there is a need for further education regarding its implementation, usage and benefits,” he explained.

“However, we have found that those companies that have moved to the BPO have embraced it in a big way – showing considerable appreciation for its efficiency and ability to offer finance,” he added.

mission accomplished?The BPO set out to provide all of the benefits of LCs while removing the drawbacks of the manual processing associated with trade finance.

However, Barisaac explained that the BPO has in fact delivered more than it promised.

“The BPO is a distinct solution with a number of unique benefits, including highly flexible financing options that offer corporates access to finance at almost every stage of the supply chain,” he said.

“Of course, digitalising trade finance processes is still at the heart of the BPO’s mission, and it certainly offers a compelling digital alternative to letters of credit – providing risk mitigation through bank mediation, with new levels of efficiency.

“For instance, this enables counterparties transacting under open account to enjoy risk-mitigating benefits without the documentation of a letter of credit. There is still, however, a great deal of work to do in order to ensure these benefits are widely available,” Barisaac added.

From Koll’s perspective, however, the BPO aligns perfectly with the industry’s broader move towards digitalisation, offering risk mitigation through secure matching of agreed data online.

“BPO transactions to date have been successful. It is well positioned as an instrument mainly focused on replacing open account transactions, and can help meet client demands as they continue to evolve,” Koll said.

In terms of the specific benefits the BPO has brought with it, Koll explained that it presents an opportunity to

BPO: will slow and steady win the race?Following the news that Unicredit and commerzbank had completed the UK’s first live bank payment obligation (BpO) transaction, Trade Finance caught up with the banks to discuss the BpO’s progress since its implementation in 2014.

Emma Hughes, executive editor

We have found that those companies that have moved to the BpO have embraced it in a big way – showing considerable appreciation for its efficiency and ability to offer finance.

Raphael Barisaac, head of trade finance products, UniCredit


News in depth: BpOS I B O S S p e c i a l e D i T i O N

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provide risk mitigation and financing to suppliers, under the buyer’s bank’s credit rating.

“This allows suppliers to access finance at early stages in their supply chain cycles. By improving the cash flow of suppliers, it can reduce risk and safeguard future business for all parties,” Koll said.

UniCredit’s Barisaac added that both the importers and exporters benefit from drastically faster and more efficient processes compared with traditional paper-based instruments.

“Exporters benefit from advanced financing options. Importers, meanwhile, can benefit from this too – giving themselves a competitive advantage over their peers by including BPOs in their portfolio of settlement methods,” he explained.

From a banks perspective, however, Barisaac noted that the

BPO has enabled UniCredit to acquire new clients.

“By spreading the word and supporting them with training and on-boarding, we have been able to support new – and previously unviable – transactions.

“For UniCredit, in particular, the BPO is an opportunity to convince clients of our know-how and expertise – positioning us as leaders in trade, with a flair for innovation and execution,” he said.

What about challenges?As with any new technology or tool, the biggest challenge for the implementation of the BPO has been educating the marketplace.

Barisaac described this as a long journey: “those not prepared to walk the road will struggle to see the merits at the outset.”

Koll highlighted that part

of this challenge is finding matching corporate buyers and sellers willing to go ahead with the relatively new instrument, and finding correspondent banks which are “BPO-live”.

“We therefore need to continue to educate clients and add new banks to the list of BPO participants,” Koll said.

UniCredit’s Barisaac furthered this point, stating that, “the slow level of adoption on banks’ part has hampered the progress of real businesses in this respect. Indeed, in some cases, we have had to refuse business on the grounds that the counterparty country did not have any BPO-enabled bank with which to transact.”

BPO future?From Koll’s perspective, the future for the BPO is promising.

“Importers are increasingly recognising the practicability and profitability of the BPO,

and we expect them to make use of the instrument for their trade transactions more and more over the next few years,” Koll said.

UniCredit’s Barisaac added that despite the slow start, he believes that the BPO will eventually become a mainstream payment method – growing steadily as the market begins to realise its potential.

“As pioneers in the field, we are investing considerably to accelerate this process – carrying out a number of educational initiatives, including workshops and thought leadership campaigns to foster understanding in the market, and working to make new countries BPO-ready as soon as possible.

“We also support colleagues from other institutions in understanding the value and benefits of the BPO,” he concluded. l


News in depth: p2p platformsS I B O S S p e c i a l e D i T i O N

For several years now, P2P lenders such as Funding

Circle and Lending Club have been picking up the slack left by the banks’ falling appetite to lend to small and medium-sized enterprises (SMEs).

However, incumbent banks and new lending platforms now look set to work together to serve these customers.

According to Jean-Cedric Jollant, senior product manager, crowd lending at Misys: “SME loans have been down among the biggest lenders in the US by over $20 billion between 2007 and 2014, which is the same amount that has been lent through P2P in the same timeframe. There is definitely a shift taking place.”

Since it was launched in 2010, Funding Circle has provided $1.8 billion in financing for 15,000 businesses. The numbers are becoming large enough for the banks to take a closer interest.

Moreover, the banks are recognising the importance of keeping these customers happy while facing political pressure to accommodate small companies that have been denied financing.

Jollant says SMEs will often try banks first to get better rates, which can be around 4%. This is in comparison with interest rates at Funding Circle, which typically start from 6%, and increase depending on the assessment of the individual customer.

He notes: “If they cannot say they will provide the loan, they can at least suggest an alternative partner.”

Banks are coming to realise they have substantial resources to make working with P2P lenders beneficial to themselves as well as to borrowers.

Jacqueline Morcombe, principal solutions lead, lending at Misys, says banks are seeing new opportunities to profit from existing capabilities.

“Banks are incredibly concerned about the competition,” she says. “But they have the architecture and credit and risk-management processes to leverage P2P principles within or alongside their own systems and use it as a way to diversify risk and provide finance where they have struggled in recent times.”

One bank that has already taken the move is Santander. It has been working with Funding Circle for two years. The bank’s focus is on providing better-quality customer service by referring customers to the platform if the bank itself cannot provide financing. Following its success, Funding Circle signed a similar agreement with RBS at the beginning of the year.

The reciprocal agreement allows Funding Circle to pass on some of its clients to the banks if they are in need of additional banking support. Funding Circle has also gained access to international markets it could

not previously reach.In the US, Lending Club

already has agreements with Union Bank and Alliance Partners, which manages the BancAlliance consortium of small local banks.

Santander does not take any fees from the borrowing clients it refers, but not all banks will operate in this way.

Misys’ Jollant says this potential to take a cut will make collaboration even more appealing, adding: “The bank is earning through two points – taking an origination fee that can be around 3% to 6%, and a second 1% fee for payments processing and servicing the account. There is certainly money to be made through P2P for the banks.”

Banks will no doubt be delighted if they can make this money while dumping the actual credit risk on investors coming through the P2P platforms, so avoiding capital charges. But it is the banks’ strategic funding advantage that makes forging partnerships such an attractive prospect for both parties.

Jollant says: “Lending platforms are struggling to find the investors, but the bank has that. The investors stick to the bank whether rates are up or down, while investors lose confidence in the online platforms.”

The loan-servicing infrastructure within banks gives them the ability to offer more

as part of a facility, including additional levels of security.

“Banks could leverage their infrastructure to recover the defaulting loans which online lenders don’t support,” says Jollant. “Funds may be able to offer insurance at a premium, but banks can do this at almost no cost.”

The next stage might be the potential opening up of a mandatory referral process. The UK government has assessed the possibility of SMEs being referred on to alternative lenders if their banks are unable to provide funds. These borrowers’ information will be passed on to a referral pool at the British Business Bank, which P2P platforms can access.

As the regulatory environment becomes stricter for P2Ps, following recent setbacks, continuing growth at the same pace might not be easy. Banks therefore might find they have the opportunity to pick up some parts of the business; even those not actively looking to engage in supporting P2P growth might be laying the groundwork for this eventuality.

Misys’ Morcombe says: “It is possible we will see some looking to sell their portfolios as there is a move to further reduce capital cost in the regulatory climate. Banks are future-proofing to ensure they have key fundamentals in place.” l

This article first appeared in Euromoney Magazine on September 2, 2016 .

Bank collaboration with p2p platforms on the upOn the back of the peer-to-peer (p2p) Fintech evolution, which at first looked like a threat to traditional lenders, banks are beginning to work more closely with alternative lenders to find mutually beneficial ways to serve SMe corporate borrowers.

Kimberley Long


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Feature: ICCS I B O S S p e c i a l e D i T i O N

Each year since the 2008-09 financial crisis, we’ve witnessed a lack of

availability of trade finance. According to a recent Asian Development Bank (ADB) study, the global unmet demand stands at $1.4 trillion – a significant barrier to the global trade flows that drive global economic growth.

Many consider post-crisis banking regulation to be one of the causes. According to the ICC 2016 Global Survey on Trade Finance – an annual report reflecting the opinions and attitudes of global trade finance leaders and practitioners – 77% of respondents considered the Basel III regulatory requirements a significant impediment to trade finance.

Meanwhile, Global Survey respondents also cite compliance requirements relating to anti-money laundering (AML), know-your-customer (KYC) and sanctions as reducing bank capacity for trade finance deals, with 90% citing the complexity of compliance requirements as a chief barrier to the provision of trade finance.

What’s more, small to medium-sized enterprises (SMEs) – particularly those in emerging markets – feel the impact of limited bank capacity and banks retrenching to core markets. According to the Global Survey, 58% of total trade finance proposal rejections were faced by SMEs, in comparison to only 9% for multinational corporations.

None of this will be a surprise to industry practitioners and regulatory authorities. Year on year, Global Survey respondents indicate that they would use more trade finance if it were approved and available. Addressing this gap in demand should be a top priority not only for trade finance providers, but also for the users – including treasury and finance executives in large multinationals, and entrepreneurs leading small businesses looking to expand.

Fortunately, there are some measures that can perhaps finally close the trade finance

gap – which will, in turn, boost global trade flows and economic growth.

Finding the right balanceFirstly, the industry must find the right balance when it comes to regulation. Although the shift towards a more balanced regulatory treatment of trade finance is underway, there are still some areas where increased dialogue and collaboration could make a difference. This is particularly the case with regards to aligning regulation to suit the risk profile of trade finance instruments.

Certainly, credit risk and default experience for trade finance is favourable. Data from ICC’s 2015 Trade Register shows the transaction default rate for short-term export letters of credit (LCs), for instance, was at 0.01% between 2008 and 2014 – the equivalent of an Aaa or Aa Moody’s rating. In addition, even in the event of default, Trade Register data shows that the median result for all short-term trade finance products is close to 100% recovery.

Considering this low risk profile, it is crucial that we enhance the market understanding of trade finance instruments, including both traditional trade finance as well as new techniques, such as supply chain finance (SCF). This will improve awareness of the low risk nature of such instruments among both users and regulators – and should increase their uptake.

Of course, Global Survey respondents also highlighted the impact of compliance on the availability of trade finance. Here, there is no easy solution. Compliance measures such as AML and KYC are necessary for managing risks and conducting business prudently.

That said, opportunities remain to increase understanding among bankers, trade finance practitioners, and other stakeholders. Differentiating between client KYC and non-client due diligence expectations, for instance, might help to

ease the process. Furthermore, dialogue should extend to compliance and regulatory issues beyond the topic of capital adequacy.

One key area that should be highlighted is that of the volume of trade-based money laundering that does occur, only a small minority takes place in the context of trade finance transactions. Clarifying such information could help direct compliance measures and enhance understanding around trade finance.

alternative sourcesYet, efforts to close the trade finance gap should extend beyond focus on regulation and compliance. Much of the demand can also be met by attracting additional non-bank capital to trade finance.

In particular, having witnessed dramatic growth in recent years, private sector sources of finance – specialist financiers or alternative finance providers, for instance – are increasingly collaborating with global and regional banks to deliver trade finance solutions and help meet demand, especially in emerging markets. Certainly, enhanced collaboration between banks and specialist financiers will help attract more capital to key business areas – such as pension funds and private equity.

In addition, export credit agencies (ECAs) provide significant support for export finance – especially in times of global economic slowdown. This is being supported by alternative liquidity flowing into the ECA space. 37% of the respondents to the Export Finance survey included in the ICC report said that they had successfully concluded business with institutional investors in the relating to ECA finance. This represents an increase from 30% that responded positively to the same question the previous year, and reflects the growing role alternative investors are playing in the ECA finance space.

Finally, the role of multilateral development banks (MDBs) in addressing

closing the trade finance gap as many as 61% of the respondents to the international chamber of commerce (icc) 2016 Global Survey on Trade Finance reported a global shortage of trade finance, while over 90% cited the complexity of compliance requirements as a chief barrier to its provision. icc Banking commission examines the measures that can be taken to close the trade finance gap and address unmet demand.


Feature: ICCS I B O S S p e c i a l e D i T i O N

trade finance gaps was perceived as helpful by 75% of Global Survey respondents, showing they are stepping up to meet the demand. And the Global Survey shows MDBs have particularly ramped-up operations in Africa. For enterprises that need help, trade finance support is becoming more and more available from selected MDBs operating across the region.

The African Development Bank (AfDB) established a $1 billion Trade Finance Initiative (TFI) in 2009 to support African markets where trade liquidity was constrained. After its initial success, the TFI was developed into a fully-fledged Trade Finance Program aiming to address the acute shortage of trade finance on the continent – serving all 54 countries in Africa in 2013. Other MDBs have similar initiatives, including the International Finance Corporation’s (IFC) Global Trade Finance Program (GTFP). In 2015, all of IFC’s Trade Solutions programmes together supported $23 billion in emerging market trade worldwide.

That said, Global Survey data also indicates that the perceptions of MDB and ECA support vary by region – having been deemed most effective in advanced Asia, Russia, and sub-Saharan Africa – but less so in other Commonwealth of Independent States (CIS) countries, in addition to India, Central America and the Caribbean (see figure 1). Increasing the availability of MDB trade finance in these regions should be a priority, and MDBs should also examine institutional limitations in their existing trade finance facilitation

programmes, in order to counter geographical disparities or difficulties working in particular markets.

Finally, the trade finance landscape has witnessed the emergence of Fintechs, which are shaping the future of the industry. In contrast to retail banking, the required balance sheets in trade finance, the regulatory framework, and the expertise required to mitigate risks means that Fintechs are actually partners to banks, rather than competitors. Such alliances will drive additional efficiencies and the capacity of banks to do business – perhaps shrinking the trade finance gap.

automating trade financeOf course, part of the success of Fintechs is that they fill a real need for technology in trade finance. And digitisation is a means that must be exploited to close the trade finance gap. It offers significant benefits to trade finance, allowing the convergence of physical, financial and document chains – helping banks and corporates reduce the costs and complexity of trade finance by automating processes. This convergence – generating purchase orders and invoices, document comparisons, and sanction checks, for instance – improves working capital management and reduces operational costs and risks.

Indeed, eDocs (paperless documents) significantly lessen the risk of fraud through greater control of documents, while digital platforms enable all the parties involved in a shipment to collaboratively draft relevant documents.

This centralisation of processes maintains data integrity, accelerates the finalisation and issuance of originals, and reduces errors. Overall, these solutions clearly improve the experience of people within organisations and across the supply chain by making eDocs accessible anywhere and by enhancing efficiencies.

Despite this, the Survey reveals a slow uptake of digitisation. Just over 7% of respondents claimed that digitisation is widespread, while one-fifth reported there is “none at all” and two thirds reported that there is “very little” digitisation.

While there are a number of significant challenges to digitising trade – for one, the large-scale size of the task at hand – expanding the uptake of digital trade finance solutions and partnerships will only enhance the availability of banks to provide trade finance. Furthermore, the simplification and reduced cost of trade finance will increase accessibility for SMEs.

anti-trade rhetoricFinally, one other impediment to trade finance needs to be addressed: the backlash against trade and the emergence of an anti-trade rhetoric around the world. This has been particularly evident in the ongoing US Presidential election campaigns, as well as in the outcome of the EU referendum in the UK.

Such rhetoric has translated into protectionist and populist measures, with 2015 seeing an estimated 40% increase in trade barriers, according to the Global Trade Alert Initiative. The impact on trade is severe, considering that global trade is expected to grow by only 2.8% in volume this year – the fifth consecutive year of growth below 3%.

As long as trade remains under attack, for many it will be deemed as unworthy of funding. In turn, this could influence the ability of governments and policymakers to support trade finance activities. Both businesses and trade finance industry stakeholders should therefore ensure that we reclaim the narrative around global trade, relaying its importance to the public and ensuring that trade is on the agenda of policy-makers worldwide.

Year on year we see the trade finance gap stifle trade growth. Yet there are ample opportunities to help address the trade finance gap, and increased uptake of these measures will not only benefit businesses across the world and boost global growth, but will also develop and lead to increased innovation in the trade finance industry. l

6%

17%

21%

10%

23%

11%

17%

29%

15%

25%

32%

37%

67%

50%

14%

55%

75%

50%

34%

22%

17%

36%

20%

18%

Western Europe

North America

South America

Other CIS

Developing Asia (excl. India and China)

China

Middle East and North Africa

Not at all Very little Somewhat To a great extent

Figure 1: extent to which trade finance programmes of gaps of mdBs and ecas narrow trade finance gaps, by region

Source: ICC


Feature: BAFTS I B O S S p e c i a l e D i T i O N

Over the past few years, concerns have been raised in both public

and private sectors that trade-based money laundering (TBML) was becoming an increasingly used tactic of criminal organisations. In many cases, banks have been asked to significantly increase their interdiction of transactions to screen for anomalies. As a result, financial institutions have added significant cost and time to their transaction processing, creating a disincentive for customers with legitimate commerce to use banks relative to alternate transaction channels.

In a June 2016 report issued by the Congressional Research Service (CRS) to members of US Congress, the CRS summarised trade-based money laundering as involving “the exploitation of the international trade system for the purposes of transferring value and obscuring the true origins of illicit wealth.”

Typically, the value transfer in TBML manifests in over/under invoicing of goods, over/under shipment of goods, multiple invoicing and misrepresentations of shipment content or quality of goods.

Local regulatory requirements for banks vary by jurisdiction, but documentary trade finance red flags often include requirements for banks to do price validations to check for over/under invoicing, conduct screening for dual-use goods, and in some cases, banks have been expected to make calls to validate the consistency of shipment data as represented on transaction documents.

The WTO estimated global merchandise exports to be approximately $19 trillion in 2014. Although the volume slightly increased in 2015, the dollar value slipped to approximately $16.5 trillion given fluctuations in commodity and energy pricing and currency shifts. Depending on the source, roughly 15-20% of trade is estimated to be conducted through documentary trade products, where banks have visibility into details of shipment information through transaction documents.

The remainder is settled by a clean payment from buyer to seller and typically is processed automatically through systems. By comparison, the value of total payment

activity in 2014 was estimated to be $2,922 trillion, suggesting that roughly 0.1% of total payment value will be driven by documentary trade. It begs the obvious question: why place the additional emphasis on screening the 0.1%?

Various forms of TBML schemes have been reported, involving black market peso exchange (BPME), hawalas, shell companies, and other types of structured transactions. Regardless of the structure of the scheme, distinguishing TBML from legitimate transactions boils down to a few consistent principles:

• What is known about the companies/individuals involved?

• Are the transaction flows consistent with the business?

• Are there anomalies or suspicious activity in the transaction flows?

• What method of controls, reporting and information sharing exists?

Trade-based money laundering – time for a re-thinkWhen examining the possible approaches to mitigating trade-based money laundering (TBMl) risks, the ability of banks to identify and control TBMl is often overstated, and the understanding of trade-based money laundering versus documentary trade finance is often lost. it is time for a re-think.

Tod Burwell, president & ceO, BaFT*


Feature: BAFTS I B O S S p e c i a l e D i T i O N

Banks are required to know their customers, understand their business, and are increasingly expected to ensure the transactions processed are consistent with the expected volume, value and flows associated with that business. There have long been requirements to file currency transaction reports (CTRs) and suspicious activity reports (SARs). Unfortunately, reporting specifically for TBML is lacking. Though TBML reporting has increased in various countries, better tracking data is required to focus the mitigation efforts to where the actual trade-based money laundering is taking place.

While banks file millions of SARs and CTRs each year, and are best placed to identify illicit funds entering the banking system, it is not clearly understood how much trade based money laundering occurs outside of the banking system. The US Department of the Treasury estimated in its 2015 National Terrorist Financing Risk Assessment that only 22% of funds used in terrorist financing moved directly through banks. This begs the obvious question: what is being done to mitigate the other 78%?

Now, let’s go back to how TBML typically manifests – through discrepancies in the invoice value, quantity and quality of goods actually shipped. We already established that banks have visibility into only 15-20% of the goods shipments. Further, banks deal in documents only, and have no ability to assess the “true value” of goods being shipped, that the physical goods shipped match the invoice and other documents. It begs the obvious question: why are we expecting banks to be best placed to identify over/under invoicing, over/under shipment, and validation of goods shipped versus that represented in documents?

The US government, through Immigration and Customs Enforcement (ICE) and Homeland Security Investigations (HSI), established a Trade Transparency Unit (TTU) in 2004. The TTU deployed a data analytics tool to identify anomalies in trade shipment data and behavior between the US and several counterpart nations. The tool has helped to detect instances of customs fraud, contraband smuggling and tax evasion, leading to seizure of over $1 billion from illegal activity. The TTU has demonstrated that if data analytics are applied to the complete source of shipment data, they can be more effective at identifying invoicing anomalies than banks. It begs the obvious

question: aren’t customs or shipping companies better placed to identify irregularities in trade shipments than banks, and shouldn’t that be where the emphasis on TBML mitigation is made?

In 2015, the Joint Money Laundering Intelligence Task Force (JMLIT) was formed, bringing together the UK National Crime Agency, City of London Police, financial institutions and other public sector stakeholders in the UK. The task force effectively shared intelligence to identify typologies being used to launder money through UK banks. The 14-month collaboration produced material results including the identification of suspicious accounts, closures of accounts, seizure of funds, and actual arrests of criminals. Information sharing clearly has its merits, although, within each jurisdiction, information sharing must be balanced against privacy concerns. Nevertheless, the JMLIT is a reference point that should be further examined to determine how to better bring stakeholders together to achieve the aim of reducing financial crime. As it relates to combating TBML, it seems that customs, shipping companies, big data technology providers, and other private

sector stakeholders would be relevant to participate in such a cross-industry effort.

While the motivation for tracking goods that can be used as weapons is clear, dual-use goods tracking has become one of the more frustrating requirements placed on banks. Though this is not directly tied to TBML, there is a parallel in understanding that banks only see 15-20% of trade transactions, and are not best positioned to identify and report dual-use goods. A Harmonized Tariff Schedule (HTS) was developed by the World Customs Organization. This code was originally intended to facilitate identification of tariffs and duties for goods as they cross borders. The digits within the code reference various chapters and sub-headings in the tariff schedule for various countries. Think of this as a passport for goods.

Not every country has adopted an identical HTS system, and clearly, not every country has automated capability. Nevertheless, with an existing global framework to categorise goods, it should not be a stretch to adapt the framework and review it against that which can be classified as dual-use. This would add greater consistency, capture the bulk of cross-border trade, and enable greater automation of tracking. It begs the obvious question: why rely on banks for dual-use goods reporting, when the HTS can be adapted for this purpose to identify and report goods as they are cleared through customs?

While trade finance is not exempt from money laundering risk, it is clear that the overwhelming majority of TBML will not be captured through screening documentary credit for red flags and transaction monitoring. As we move to an age when big data is enabling faster and more effective modeling, we ought to apply that modeling capability to the larger and more relevant sources of data. We need to incorporate the stakeholders that manage those pools of data to be integral parts of the solution, and leverage cross-industry intelligence. While challenges continue to exist, the tools to combat TBML are improving. Nevertheless, we cannot rely on more of the same tactics. It is time for a re-think. l

*BAFT, the leading global financial services association for international transaction banking, helps bridge solutions across financial institutions, service providers and the regulatory community that promote sound financial practices enabling innovation, efficiency, and commercial growth . BAFT engages on a wide range of topics affecting transaction banking, including trade finance, payments, and compliance . The association website is www.baft.org .

The US Department of the Treasury estimated in its 2015 National Terrorist Financing Risk assessment that only 22% of funds used in terrorist financing moved directly through banks. This begs the obvious question: what is being done to mitigate the other 78%?

tod Burwell, President & CEO, BAFT*


Sponsored: Digitised supply chainsS I B O S S p e c i a l e D i T i O N

Since Ford Motor Company pioneered mass production over 100 years ago,

manufacturing operations have hardly changed. But now, some companies in sectors as diverse as engineering, computing and mobile phones are building factories almost entirely populated by robots, backed by digitised supply chains.

Manufacturing is on the brink of an ingenious revolution, which will allow production to be customised or ramped up quickly in response to changing consumer tastes and demands. Artificial intelligence, robotics and megatronics are beginning to transform factories. Ford’s mass production is making way for mass customisation.

Tailoring products to customer needs in this way gives a company competitive advantage and the potential to earn a higher margin. But this will not be possible

without digitising the physical supply chain, to ensure that suppliers learn about shifting demand in real time. Moreover it’s difficult for suppliers to react without a digitised financial supply chain that provides sufficient working capital to match shifts in production.

In an Economist Intelligence Unit (EIU) Made to Order survey published earlier this year, 70% of respondents agreed that

this new form of manufacturing needs a new approach to supply chain financing. At our corresponding Digitisation of Manufacturing event in Mumbai, my fellow speakers and I, some of who are leading manufacturers, explained why the benefits of digitising factories, supply chains and financial ecosystems justified the significant costs.

21st century manufacturing’s missing link – digitised financial supply chainsAshutosh Kumar, Regional Head, Transaction Banking, india and South asia, Standard chartered Bank

do mass customisation and personalisation require new approaches to financing supply chains?

Personalisers vs. non-personalisers

Non-personalisers

Personalisers

7%

6%15%

25%

79%68%

Customisers vs. non-customisers

26%

3%

85%71%

15%

Customisers

Non-customisers

Agree

Neither agreenor disagree

Disagree

Agree

Neither agreenor disagree

Disagree

Source: EIU Survey

Manufacturing is on the brink of an ingenious revolution, which will allow production to be customised or ramped up quickly in response to changing consumer tastes and demands. artificial intelligence, robotics and megatronics are beginning to transform factories.

Ashutosh Kumar, Regional Head, Transaction Banking, India and South Asia, Standard Chartered


Sponsored: Digitised supply chainsS I B O S S p e c i a l e D i T i O N

making way for mass customisationCustomisation involves different degrees of product tailoring. Most commonly, mass customisation is the tailoring of products to suit the needs of specific customer groups. Personalisation goes further, fitting a product to what an individual wants. If a particular group of customers in India, for example, suddenly starts buying blue shirts with Oxford collars, mass customisation would allow a clothing manufacturer to boost production of this item. Similarly, a pair of jeans could be personalised with a monogram for a buyer in Hong Kong.

Digitised supply chains make customisation and dynamic changes in production possible. Some companies – typically those in the fast-moving consumer goods and consumer technology sectors where shelf lives are short – are already passing sales intelligence through their supply chains in near-real time. Manufacturers and their suppliers are learning immediately about shifts in customer demand. Orders for particular products are triggered, setting off cascading orders throughout the supply chain.

Fashion items, foods and even mobile phones are examples of goods that might be tailored to specific customer needs or are subject to fluctuations in demand. The gains for companies are clear. Those with flexible manufacturing and digital supply chains are already gaining a competitive advantage. Furthermore, as highlighted by one of the speakers, smart factories and digital supply chains could boost productivity by up to 30%.

easing financial strainsThose companies pursuing customisation are likely to find the challenges of financing their supply chains intensifying, because it requires more flexible financing options than have generally been available. This is why seven out of ten EIU survey respondents – and more in China and South-East Asia – agree that such strategies require new approaches to supply chain financing.

Working capital shortages are the most problematic area of financing. More flexible terms of working capital finance are likely to be required. Businesses will also need to be able to pay suppliers at more frequent intervals – often close to real time – to accommodate on-demand and just-in-time delivery of inputs.

For this reason, it’s important to also digitise financial supply chains. Automating the flow of information passing throughout the supply chain ecosystem – including retailers, distributors, manufacturers, suppliers and banks – allows banks to provide working capital when it’s needed.

Digitising a company’s financial ecosystem makes funding working capital far more efficient. If there were, for

example, 200 distributors and suppliers in an ecosystem, the bank could finance them much more seamlessly.

Insights into the transactions flowing through the ecosystem also allow banks to better judge risk. Not only can a bank see orders and invoices, but also the percentage of goods rejected. As a result, a bank can finance more of the companies in the supply chain and do so at a cheaper rate.

completing the revolutionOver the next few years, the shift from mass production to mass customisation will gain momentum. While the more progressive companies are already building their smart factories and re-wiring their supply chains, others will soon follow. At our Mumbai event, panellists from sectors as far apart as pharmaceuticals and engineering had no doubt this would happen.

The 21st century’s production revolution will not be complete without the digitisation of financial ecosystems. Only this can deliver working capital with the economies of scale, efficiency and dynamism that is needed. l

Counter-party risk

Operational risk

Operational risk

Transaction risk

Payment risk

The reduction of these risks under a supply chain model enables banks to price �nancing more competitively

Cred

it m

argi

n

Counter-party risk

Transaction risk

Payment risk

Bilateral lending Supply chain

Reducing finance risk

Over the next few years, the shift from mass production to mass customisation will gain momentum. While the more progressive companies are already building their smart factories and re-wiring their supply chains, others will soon follow.

Ashutosh Kumar, Regional Head, Transaction Banking, India and South Asia, Standard Chartered

Source: EIU Survey


Feature: Fintech vs. traditional tradeS I B O S S p e c i a l e D i T i O N

Trade’s digital future: let battle commenceWhile it’s undeniable that the ability to share information on open digital platforms will make it both faster and cheaper to trade goods around the world, some in the trade finance value chain still insist on hard copy documentation – because that’s what they know and therefore trust. But, with the amount of Fintech companies on the rise, can banks afford to miss out on the digital transition?

Emma Hughes, executive editor



An increase in the amount of Fintech tool and service providers that have

cropped up to support all areas of finance – including trade – has brought about a notable change in the attitude traditional trade finance bankers have towards digital solutions.

On the one hand, it is obvious that there is a gap appearing in the market, and start-ups are swarming to fill it, meaning change must happen if traditional bankers are to survive.

On the other hand, the sheer mass of players has only added to the reluctance of traditional bankers to embrace the digital revolution – many will remember a similar scenario during the latter part of the 1990s, when sweeping changes were brought about by digital computing and communication technology.

At that time, technology start-ups flooded the market – only a few of which remain today. Today’s Fintechs face the same future, in that “not all of the providers appearing in the market can survive,” Ian Kerr, CEO of Bolero, told Trade Finance.

And, while it is almost certainly the case that the amount of Fintech providers will shrink as developments continue, the fact is that at present, most of the trade finance banks are looking into implementing solutions for their customers.

The question that remains is whether they will go it alone, or work together with Fintech providers to achieve this.

Partnership potentialWhile there is an obvious disparity in the size and track-record of Fintechs versus banks, there is also a fundamental difference in their core objectives.

“Most Fintechs have a narrow focus on a solution that exploits new technology and fills a perceived gap or provides a better business model to meet needs that are not currently being met,” explained Kittredge Carswell, VP, senior offering manager at CGI Trade and Supply Chain.

He also highlights an important trend, however, in that while “financial institutions need to meet the needs of all their customers, and therefore carry the weight of legacy products, processes and technology” they are also “finding the right evolutionary path forward, enabled by new technologies and business models.”

Those who have in past worked to avoid technological change are now beginning to invest in, consider partnerships with and learn from companies that perhaps didn’t

exist 10, or in some cases, even two years ago.

Reaching the conclusion that partnerships are the future was not straightforward, however.

In the past few years, the trade and supply chain finance market has witnessed Fintech providers attempting to move in and provide one-stop-shops; banks toying with the idea of implementing their own in-house digital solutions; and different customers requiring different solutions.

We are now at a stage, however, where both parties seemingly agree that the most sensible way forward could only be in partnering with each other, playing to one another’s strengths.

“Creating technology solutions is not what banks are best at. Banks need to partner with companies that have this expertise and provide what they do best,” said Kerr.

“Their job is to underwrite and finance the transaction and mitigate risk. Fintechs are perhaps better placed to recruit the right talent and foster innovation.

“We have moved a long way on from the days when the banks saw the need to build solutions in-house to maintain competitive advantage,” he added.

For ANZ’s Saxena, the move towards partnerships was an inevitable one owing to the fact that, in the digitally powered world, customers are increasingly looking for efficient and less expensive ways of availing trade finance.

“The end-to-end trade finance chain requires customer relationship, ability to offer risk protection, making funding available, managing the legal and regulatory requirements and providing frictionless operational flow.

“It is difficult for a single entity to develop expertise, scale and innovation in each of the above. This makes consolidation and partnerships a logical option for the players towards an attempt to meet customer expectation,” he told Trade Finance.

Sam Sehgal, EMEA head of trade finance, Treasury and Trade Solutions, Citi, explained that the best way to “emerge stronger going ahead is through a) maniacal focus on innovation and b) constant search of cutting edge partnerships.

“If we look 5- 10 years ahead with regards to the trade business, we believe there will be a lot of convergence and consolidation,” he said.

Indeed, partnerships of this kind are already under discussion and banks have also begun to invest in those that look set to succeed.

For example, web-based supply chain finance platform provider, Tradeshift, raised $75 million in its series D funding round, led by venture capital firm Data Collective (DCVC) and attracted investments from HSBC (the first bank to invest in the start-up), American Express Ventures, Notion Capital, CreditEast Fintech Investment Fund and Pavillion Capital.

“We are already seeing several major banks start to acquire and incubate Fintechs. We are also seeing a few Fintechs start to emerge as leaders in their particular domains. Ultimately it becomes about customer share and customer relevance,” said Kwafo Ofori-Boateng, global director, Front Office Transformation at IBM.

“Partnerships are inevitable and it is already happening. Leading technology providers are in a very good place to lead the way and step in to provide that contractual and technical bridge by providing an integration access point and capability, almost as a managed service for banks,” noted John Smith, managing director, EMEA, International Group, Fiserv.

“By using their existing relationship with leading technology providers, financial institutions can solve the issues they have in dealing with smaller organisations and bridge the gap between the latest technology offered by innovative start-ups and their own customers,” Smith added.

RegulationWhile partnerships and investment in Fintechs from banks will certainly bring the two parties together, there is still a large obstacle that may end up promoting Fintech advancement over that of the banks: this obstacle is of course regulation.

At present, it is far easier for a Fintech company to move into a certain area of financial services using a new tool than it is for a traditional service provider, who is restricted by legacy systems and regulatory hurdles.

creating technology solutions is not what banks are best at. Banks need to partner with companies that have this expertise and provide what they do best.

Ian Kerr, CEO, Bolero



“Regulatory oversight is minimal in the case of Fintechs and heavy in the case of incumbents. In the context of traditional trade finance, it is quite disproportionate,” said Rahul Saxena, head of products – Trade & Supply Chain, South & South East Asia and EMEA, Transaction Banking, ANZ.

“Fintechs are competing on process efficiency resulting in time and cost savings related to a particular aspect of customer’s engagement with a financial institution service provider. Incumbents offer regulatory insights, trusted counterparty status and large funding capacity as value proposition,” he added.

Bolero’s Kerr agreed with this, stating that in his personal view, the regulatory pendulum has swung back too far for banks.

“Compliance and regulatory considerations have meant that banks are hamstrung and are unable to effectively support business they should be involved in as a result.

“Regulation will hit the Fintech sector but at the moment they have more flexibility and can reach into areas banks can’t,” he explained.

CGI’s Carswell added that “Fintechs are not yet encumbered by the regulatory requirements and constraints that are so pervasive for financial institutions”.

For Citi bank, however, Sehgal doesn’t see regulation as an issue per se, as any Fintech the bank decides to work with will automatically have to comply with the same regulations it has to as soon as the technology is adopted.

are Fintechs a threat?Clearly, the lack of regulation surrounding Fintech operations is a point in their favour, as it means they can freely develop and implement certain solutions – such as open account finance and peer-to-peer lending – without the watchful eye of the regulator.

This does leave the market open to a lack of both experience and expertise, however. As Saxena outlines, if they are to go it alone in this way, Fintechs will need to develop a good understanding and infrastructure around:• AML/KYC/ CTS/ETS requirements• ICC codes like UCP, URDG, URC• Local regulatory requirements (which

includes related payments and FX regulations in certain markets)

Indeed, from the banking side, the purpose of traditional trade goes beyond transfer of value, Saxena said, adding that it

also includes:• Risk mitigation – beneficiaries of

traditional trade finance instruments (LCs and guarantees) look for counterparty and country risk protection and consider the perceived credit worthiness of the risk mitigating party (banks or financial institution). Banks score over Fintech providers on most occasion on this front.

• Funding reliability• Size of funding especially while dealing

with large clients

“Incumbents currently score over Fintech providers on this front and it will require time, effort and money for the Fintech providers to develop these capabilities and infrastructure,” he explained to Trade Finance.

According to IBM’s Ofori-Boateng, trade finance has tended to be a particularly staid part of banking, but is still based – in its simplest form – on mechanisms and instruments to establish trust between, and reduce risk, for exporters and importers.

“I do not believe that Fintechs are necessarily a threat to trade finance banks, but instead are providing new mechanisms through distributed ledgers (with block-chain technology) to speed up payments in the typical trade finance deal and to reduce risk.

“I think Fintechs will come to be a welcome ally to most forward looking traditional trade finance companies,” Ofori-Boateng.

This brings us back to the point of partnerships.

“When talking about Fintechs, it’s not so much about them being a threat, but about being aware of what different vendors can provide (…) it is important for these technology providers to coexist with banks to provide a trusted channel,” commented Bolero’s Kerr.

CGI’s Carswell added that the threat of Fintechs is really a matter of perspective, in the sense that most agree that new business models and digital processes will make

legacy solutions and processes obsolete.“Fewer agree on the timeline. However,

if the questions is if the Fintechs will drive these transformations to the detriment of the financial institutions, or will they enable the financial institutions to do so themselves is yet to be seen, and it is likely to be some of each,” he added.

Future winner? Establishing which solution will succeed in future, is an almost impossible feat. Yet most agree that the only way forward is by working together.

According to Bolero’s Kerr, we’re at least a couple of years off the market settling down, in any case.

“While there are a lot of Fintechs in the market, it’s all very early stages at the moment – all proof of concept rather than industrial scale projects,” he explained.

He added that the coexistence of ledge technology and existing applications and networks provided by companies like Bolero will be key to finding the right uses.

“The technology vendor community needs to be more open to working together. Particularly in trade. There’s still a long way to go in digitizing trade but I say that while we are at a comparatively early stage of the adoption of digitization in trade we should let many flowers bloom.

“I think that we will see consolidation and mergers on the horizon. The vast numbers of technology providers that are out there at the moment aren’t sustainable,” Kerr said.

ANZ’s Saxena furthered the call for partnerships, stating that: “Banks and Fintechs who are able to forge symbiotic collaborative relationships and provide seamless, frictionless, enriched customer experience over a sizable scale while meeting shareholder returns will have the best chance to win market share in future”.

Meanwhile, Fiserv’s Smith said that there is unlikely to be one clear winner, “but we’ll see many mutually beneficial relationships develop instead”.

And Citi’s Sehgal concluded by saying that it’s hard to say which tool will be the most successful.

“It’s like looking back and trying to predict whether the mobile phone or the computer or the web won out at the end in changing the world we live in.

“They all did in their own ways. This is therefore true for these [Fintech] technologies as well. Whether singularly or collectively they promise to reshape our sector in the years to come,” said Sehgal. l

Regulation will hit the Fintech sector but at the moment they have more flexibility and can reach into areas banks can’t.

Rahul Saxena, head of products – Trade & Supply Chain, South & South East Asia and EMEA, Transaction Banking, ANZ

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Feature: Blockchain and trade financeS I B O S S p e c i a l e D i T i O N

Whether you are in the ‘bullish IT’ camp or believe a lot of

the claims made about trade finance blockchain are a partial anagram thereof, no-one disagrees that the potential cost savings over traditional paper-based products could be significant.

Around 50% of bank costs for a letter of credit arise from manual document handling and checking. And given the extensive cross-selling potential of trade finance – according to a report by Accenture $1 in trade finance fees can bring an additional $1.7 in FX and cross border payment fees, and another $2.25 in other transactional banking revenue – a 50% cut in costs on elements of that one-stop-shop service is a major boost to the margins for trade finance lenders.

But traditional paper-based trade finance bankers have good reason to be sceptical. The Bank Payment Obligation (BPO), a collaboration between SWIFT and the International Chamber of Commerce (ICC) to provide digital means of settlement in international trade, has still not been widely adopted. According to Boston Consulting Group, only 20 banks were offering BPO as of October 2015, including just six of the top 15 trade banks: The first live BPO close in the UK only happened in August (a deal via Commerzbank and UniCredit). And in some emerging markets, Myanmar for example, even paper-based letters of credit have yet to catch on.

However, scepticism – in part born of real concern, and in part because blockchain has the potential to cut jobs and move the balance of power in trade finance from relationship bankers to IT – is diminishing, particularly given the concept is moving from the theoretical to the actual quicker than many initially predicted. For a growing number of trade bankers, it is no longer a case of will blockchain happen – but when it will happen.

Proof of conceptBarclays and Israeli start-up Wave are claiming the world’s first real trade financing deal via blockchain. Closed on September 8, the $100,000 letter of credit backs the export of dairy products by Irish agricultural food cooperative Ornua to the Seychelles Trading Company.

According to Baihas Baghdadi, global head of trade and working capital at Barclays: “We’ve proved the reality of this technology and the client, Ornua, has asked us when they can do the next transaction, which proves how user-friendly the process was”.

While the first to close a live trade deal via blockchain, Barclays is not alone in road-testing the new technology. A number of proof-of-concept initiatives have been launched in recent months, both in terms of platforms and niche add-on products.

In January, 11 members of the R3 consortium – HSBC, Barclays, UBS, BMO Financial, Credit Suisse, Commonwealth Bank of Australia, Natixis, Royal Bank of Scotland, TD Bank, UniCredit and Wells Fargo – tested a Microsoft payments platform running on a blockchain built by Ethereum.

And on August 10, both R3 and a consortium comprising HSBC, Bank of America Merrill Lynch (BAML) and Infocomm Development Authority of Singapore (IDA) announced separate proof of concepts for essentially the same thing – automated letters of credit (L/C).

The R3 testing involved 15 of its member banks – Barclays, BBVA, BNP Paribas, Commonwealth Bank of Australia, Danske Bank, ING Bank, Intesa Sanpaolo, Natixis, Nordea, Scotiabank, UBS, UniCredit, US Bank and Wells Fargo – using self-executing transaction agreements (smart contracts) on R3’s Corda distributed ledger platform to process accounts receivable purchase transactions (factoring) and L/Cs.

The HSBC/BAML/IDA initiative used Linux’s open source Hyperledger blockchain

fabric, supported by IBM Research and IBM Global Business Services. The application mirrors a paper-intensive L/C by sharing information between exporters, importers and their respective banks on a private distributed ledger. The trade deal is then executed automatically via smart contracts.

The commonality between the two experiments goes beyond automating L/Cs. Both claim technological success and both claim significant cost savings over traditional paper-based trade finance. However, all these initiatives have also highlighted a number of hurdles – scalability, security, and the need for greater collaboration.

One of the major ironies of blockchain development is that the distribution and sharing element in shared distribution ledger technology could end up falling down the priority chain as a race for market share develops.

With participants to trade financings relying on different banks, for the information shared on the blockchain to be trustworthy and enabling, the different banks and parties – importers, exporters, government agencies, shipping companies, logistics operators and insurers – must agree on a common platform and set of standards for applications like smart contracts.

competition or collaboration?It is an issue that both R3 and HSBC/BAML/IDA are clearly keenly aware of. Despite having both worked on solutions to the same problem, and HSBC being a member of R3 (although it did not participate in R3s latest testing), both consortia were quick to issue statements highlighting that the way forward was industry-wide collaboration and partnering with complementary technology providers.

While those sentiments are echoed by many trade finance blockchain protagonists, actions by some banks would suggest this is as much a race for market share as global collaboration. For example,

Collaboration or competition?Barclays and Wave claim to have closed the first letter of credit via blockchain. The new technology is coming and the pace of progress appears to be picking up. But will the hyped benefits – cost, speed and increased volume of trade finance transactions – be the driving force or will a race for technological market share hinder development?

Sean Keating, News editor


Feature: Blockchain and trade financeS I B O S S p e c i a l e D i T i O N

BAML applied for 20 blockchain patents earlier this year. Both UBS and JP Morgan have done the same and more banks are expected to follow.

The rush for patents may be defensive – no bank wants to end up being sued in the future by a start-up with a tweaked open source (otherwise known as forking) version of the same thing. And many of the patents will be for particular specific trade applications – diamond trading for example. But there is a danger that the architecture of blockchain trade finance, as opposed to specific applications, becomes a cash machine in itself rather than regaining development costs from generating improved profits via the actual business of trade finance.

If that danger becomes a reality, and recent history suggests it might, given the retraction of many banks from low margin trade finance lending into higher margin transaction and cash managements services, the heavily hyped blockchain cost-savings expected to boost trade finance lending may not meet either borrower or lender expectations.

Scalability and security are also major hurdles that have yet to be overcome. Recently, the DAO – a crowdsourced venture capital platform, based on the Ethereum blockchain, which promised the ability to dispense with lawyers and financial institutions – fell victim to a $60 million hack soon after opening.

And after the HSBC/BAML/IDA trial, Vivek Ramachandran, global head of product for HSBC’s trade finance business, announced that the exercise had demonstrated “the technical limitations of distributed ledgers, in terms of the number of nodes you can have or the quantity of data you can have on it.”

With five major blockchain trade finance initiatives underway – the three already outlined, Ripple working with Standard Chartered and DBS; and JP Morgan with Digital Asset Holdings – and spend on solutions widely predicted to hit around $400 million per year, solutions to initial teething problems are not far off: R3 is estimating a smart contract product will be trading globally in three years.

trade blockchain start-ups proliferateIn addition, the number of independent start-ups – for example Skuchain, Fluent, Wave and Zerado – ranging from smart contracts to sector-specific asset tracking throughout the supply chain, is snowballing.

Skuchain and Zerado are focused on

unlocking cash locked up in letters of credit. While Fluent is a blockchain-based financial network and payment platform aimed at large enterprises and their global supply chains.

Fluent is currently in a pilot programme with a major bank and is also being demonstrated to potential clients in the US and abroad. The Fluent network functions via payments linked to tokenized invoices. Once a buyer approves an invoice, the goods are deemed satisfactory and the invoice is then paid directly to the financier. With the supplier never holding the funds, the risk of non-payment is eliminated.

In principle, there is nothing radically new in the idea. But the system uses a custom-built, federated blockchain, where the nodes are hosted both with buyers and the financial institutions on the network, making it quicker and more secure than paper-based transactions.

In addition to the platform, Fluent has developed a suite of applications and solutions to increase efficiency, transparency, and flexibility. Its Global Payment Platform enables users to send and receive payments in real-time, both intercompany and with their suppliers worldwide.

The Supply Chain Financing Platform allows suppliers to participate in one-touch receivables financing. And the Receivables Marketplace enables receivables to be sent to a multi-lender marketplace where there is competition on pricing between lenders, unlike traditional supply chain financing programs which are often hosted by one bank.

corda or hyperledger or both?Of all the major initiatives underway, the Linux and IBM-backed Hyperledger and R3’s Corda-based offering are gaining the most traction. R3 has attracted 60 members, the most recent being MetLife (the first insurance multinational to join), while members on the Hyperledger project now number 82.

The difference between the memberships of both is stark. R3 claims to have over 50 of the world’s major financial institutions signed up. Hyperledger membership is considerably more industry-based with only around 10 pure financial entities in place.

Consequently, while banks grapple with the question of whether they should work together on a consensus model, or produce independent blockchain-based solutions and let market forces decide the winner, the bigger question is whether the two major approaches to blockchain –

which, given their membership make-ups, arguably represent leanings toward a lender approach and a borrower approach – can or will collaborate more effectively to avoid duplication of effort.

Similarly, for all the hyped aims of blockchain trade – distribution, immutability, security and trust – development of shared distributed ledger technology requires that keyword ‘shared’ at its core if it is going to truly revolutionise trade finance.

And that revolution needs to be major – in effect bridging the $1.2 trillion (according to ADB estimates) gap between demand and availability of trade finance debt, and cutting costs to enable lenders to up margins while also passing some benefit on to borrowers. In short, future trade finance economic viability and blockchain go hand-in-hand. l

independent trade and supply chain initiatives

Blockfreight: A start-up aimed at building a blockchain for global freight.

BlockVerify: Aimed at minimising fraud.

Consentio: Working with regulated payment platforms, Consentio aims to digitise the supply chain, locking immutable proof of documents and payments in the blockchain.

Chain of Things: The company is developing a sensor chip that is able to monitor and upload data and conditions on assets in the supply chain for insurance and trade finance issues.

Everledger: Diamond provenance tracking software.

Fluent: Blockchain-based financial network and payment platform start-up aimed at providing a frictionless operating network for large enterprises and their global supply chains.

Full Profile: An Australian start-up that will see a buyer of wheat pay growers over a blockchain, eliminating the settlement risk for farmers.

Hellosent: Monitors the condition of French wine being exported to Singapore.

Open Trade Docs: An open source initiative aimed at providing supply chain participants with better access to financial services using private blockchains.

Provenance: A digitised traditional product supply-line solution.

Zerado: The advisory firm has launched an app called ‘The Coffee House’ to replace paper L/Cs.


Feature: CWIECS I B O S S p e c i a l e D i T i O N

In so much of the debate that has surrounded June’s Brexit vote, the

Commonwealth has been a leading topic of discussion. Notably, ‘Leave’ campaigners often dismissed notions that exiting the EU would result in an economically isolated UK lacking in trade alliances, arguing that its historic association with the Commonwealth could be leveraged to fill any trade gaps. We would not say that the Commonwealth can be a like for like replacement – the value of the UK’s exports to Commonwealth countries currently standing at less than a quarter of its European trade – but the opportunity is considerable.

Stepping outside of any political considerations, what is undeniable is the potential of Commonwealth markets for businesses both inside and outside the UK. Much of this comes from its startling diversity – a collective of 53 sovereign

nations spanning every inhabited time-zone and continent of the world. In fact, the Commonwealth is the most diverse collection of nations after the United Nations (UN) and the World Trade Organisation (WTO), covering South and Southeast Asia, Africa, the Caribbean and the Americas, Asia-Pacific and Europe.

The Commonwealth’s highest growth countries with the greatest potential are often the least well-known to the business community – the Least Developed Countries (LDCs) and Small, Vulnerable Economies (SVEs) from Africa, Asia, Caribbean and the Pacific. But the Commonwealth also includes rich OECD countries such as Australia, Canada and the UK, as well as high-income non-OECD countries such as Barbados, Malta and Singapore. And then there is India, a country of 1.3 billion people and the fastest-growing major economy in the world.

trade opportunities aboundSuch diversity means there are opportunities for businesses across a wide range of sectors – an appetite for advanced technology and professional services in more developed economies, for example, while many of the Commonwealth’s developing markets have a need for products and materials related to developing infrastructure. To take one example, India is currently undertaking one of the world’s biggest infrastructure projects – the Delhi-Mumbai Industrial Corridor Project – with an estimated investment of $90 billion.

The Commonwealth’s geographical spread also brings security. Rather than being vulnerable to local economic downturns, natural disasters, or political instability like other regional trading blocs, the Commonwealth’s global nature means that it is insulated from such shocks. The size of the Commonwealth network also

On our doorstep: using digital trading platforms to access ripe new marketsGeopolitical developments have many corporates looking towards new markets. The commonwealth in particular is large, easily accessible and rich with possibility. Oliver Everett, ceO, The commonwealth enterprise and investment council (cWeic), explains how corporates of all sizes can use technology to make sure they get their piece of the pie.



means that one opportunity often leads to another; trade with one Commonwealth country often serving as a perfect springboard into neighbouring markets within that region.

The Commonwealth also stands out in terms of its sheer size and demographic profile. 60% of its combined 2.3 billion population are under the age of 30, and it has a combined GDP of approximately £8 trillion ($10.5 trillion). By 2020, the Commonwealth is predicted to have 1 billion middle class consumers and 40% of the global workforce, with trade between member countries expected to double to £700 billion. This young, vast and growing consumer class means that businesses that take the initiative early in Commonwealth markets can secure growth for years to come.

Commonalities such as English being a first or second language in most member countries, legal systems often based on English Common Law, and many similar business customs and practices mean it is 20% cheaper to do business within the Commonwealth. For businesses in the UK, they can also enjoy the fact that the Commonwealth often has a strong demand for UK goods and services where they carry a reputation for quality and innovation. Given the current sluggish growth of the eurozone, Britain’s unique access to these dynamic and varied markets means that UK exporters should be careful not to miss any opportunities.

accessing new trading partners With such potential for trade, the question remains as to how best to facilitate access to these far-flung potential trading partners. The Commonwealth’s unique diversity also means that successfully exploiting business opportunities is a challenge. Luckily, technology can help – via online trading

platforms geared specifically towards forging the very connections needed for success.

The Commonwealth Trade Initiative (CTI) is one such digital platform. Launched by CWEIC and using technology developed by AMPP Group, this is a new free-to-join B2B digital platform that connects members with suppliers, customers and distributors across Commonwealth markets. The site also hosts thought leadership and peer discussion groups, amongst other features, making it a channel for accessing new opportunities and forging new links.

Digital platforms like the CTI take the form of online B2B marketplaces, sometimes referred to as digital trading platforms, trading portals, e-hubs or e-marketplaces. There are many different variations and business models: buyer oriented, supplier oriented, public, private, vertical (covering every segment of a particular industry sector) or horizontal (connects buyers and sellers across different industries or regions) – so most cover a specific niche and offer functions and benefits that aren’t applicable to other sites.

In general, though, they help communicate product information, match buyers and sellers and reduce operational costs for all players in the process.

cost benefitsWith the B2B e-commerce market predicted to be worth $6.7 trillion by 2020 – by then twice the B2C e-commerce market – there is indeed a continued migration to doing business online. Some of the leading B2B online marketplaces – Chinese juggernaut Alibaba or India’s largest online marketplace IndiaMART – are now household names. Alibaba alone has 434 million users and posted revenues of $15 billion in 2016.

Online B2B marketplaces are particularly

favourable for SMEs perhaps lacking the strong marketing and sales distribution infrastructure of their larger rivals. SMEs also enjoy the fact that, for most online B2B platforms, membership is free. Given this, users can access buyers, suppliers, traders, industrialists, brokers, shippers, wholesalers and financiers from around the world with minimal expenditure.

All companies need to do is sign up and create a profile. With the average person in the UK having on average over 100 personal online accounts, this sounds unremarkable – but the ability to freely have available such an array of contacts in one place can be revolutionary for growing firms.

The benefits of online marketplaces of course extend to larger firms as well, but they often depend on whether you are using them as a buyer or seller. Cost savings can be achieved for both. For sellers, online marketplaces offer a wide, diverse customer base located in different geographic areas and industries, reducing seasonal swings in sales. It also means online marketplaces are highly liquid, meaning there is always demand to match supply, and vice versa. These liquidity improvements come free to the user and, certainly, the extensive reach offered by an online marketplace can be achieved at a fraction of the cost associated with traditional sales channels such as mass mailings, telemarketing and so on.

Buyers can enjoy significant efficiency gains by automating the purchasing process and reducing their reliance on manual processes and paperwork. Automating procurement functions, for example, drastically lowers the cost of processing. A survey by the US technology firm Aberdeen Group found that transaction processing costs were reduced by as much as 70% through using B2B procurement platforms.

in so much of the debate that has surrounded June’s Brexit vote, the commonwealth has been a leading topic of discussion. Notably, ‘leave’ campaigners often dismissed notions that exiting the eU would result in an economically isolated UK lacking in trade alliances, arguing that its historic association with the commonwealth could be leveraged to fill any trade gaps.

Oliver Everett, CEO, The Commonwealth Enterprise and Investment Council



visibility, growth and communityFor newer businesses looking to utilise new channels and grow their profile, the visibility offered by B2B marketplaces is unmatched. Reaching users across different geographies means you can cater to the needs of a global audience, and having an active profile can quickly establish the business as a global brand. In many cases, with premium membership you’ll get your own website, logo and product showcase along with higher rankings in the internal search results of the portal, putting you in direct competition with leading companies and nullifying many of their advantages.

Identifying relevant leads can be difficult when first gaining access to a vast database, yet online B2B marketplaces can help by automating the process. Keyword alerts and profiles can be configured so the user can be notified when a buyer or supplier posts a relevant product or business opportunity, and you can follow the activities of companies that are of importance to you and get notifications of their latest moves. Filtering out leads means you can focus on the most promising opportunities, and response rates are likely to be much higher than from randomly scouring the web because site members are actively looking for business opportunities.

Many companies continue to find acquiring traffic from search engines

frustrating and ineffective. Substantial investment in time and effort is needed to sift results, and achieving a high ranking can be costly. Online B2B marketplaces can act as a shortcut. This is because most B2B marketplace invest heavily in SEO and SEM campaigns that allows them to rank highly on some of the most competitive keywords. Listing your business on these marketplaces allows users to piggy-back on their search engine strength, as well as have relevant traffic routed to company websites with the minimum effort and expenditure.

One of the major advantages of online marketplaces and trading portals, especially those that are specialised, is the community

aspect. Trade portals often host trade shows, seminars, and events that not only educate members and attendees but also aid in marketing, promotion and business generation. This ability of trade portals to cultivate communities is also apparent in forums – which businesses can easily leverage for research, customer service and more.

the commonwealth trade initiativeThe CTI, however, stands out from other platforms in that it uses a sophisticated business-matching algorithm that automatically provides users with targeted business leads based on their user profile information. The algorithm is constantly at work behind the scenes to gather information to produce daily matches, combining big data and machine learning to automate the procurement, lead generation and networking process.

Users gain access to up-to-date market intelligence across the 53 member states, and there is regular thought leadership from a host of strategic commercial partners and experienced exporters. Importantly, it shouldn’t be seen as a competitor to the mega-marketplaces such as Alibaba and IndiaMART, but as a complementary service that excels at business development across often underserved markets. l

George ReevesSales Executive +44 207 779 [email protected]

Alex SheriffSales Executive +1 212 224 [email protected]

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Many companies continue to find acquiring traffic from search engines frustrating and ineffective. Substantial investment in time and effort is needed to sift results, and achieving a high ranking can be costly.

Oliver Everett, CEO, The Commonwealth Enterprise and Investment Council


Feature: RMB & tradeS I B O S S p e c i a l e D i T i O N

Figure 1: RmB’s share as an international payments currency

Customer initiated and institutional payments . Messages exchanged on SWIFT . Based on value .

January 2014

USD #1 38.75%EUR #2 33.52%GBP #3 9.37%JPY #4 2.50%CAD #5 1.80%AUD #6 1.75%CNY #7 1.39%CHF #8 1.38%HKD #9 1.09%THB #10 0.98%SEK #11 0.97%SGD #12 0.88%NOK #13 0.80%DKK #14 0.60%PLN #15 0.58%ZAR #16 0.40%RUB #17 0.40%MXN #18 0.39%NZD #19 0.35%TRY #20 0.34%

July 2016

USD #1 41.30%EUR #2 31.31%GBP #3 7.85%JPY #4 3.42%CNY #5 1.90%CAD #6 1.81%CHF #7 1.60%AUD #8 1.59%HKD #9 1.19%SEK #10 1.00%THB #11 0.94%SGD #12 0.92%NOK #13 0.61%PLN #14 0.55%ZAR #15 0.43%MYR #16 0.42%DKK #17 0.40%NZD #18 0.36%MXN #19 0.35%TRY #20 0.26%

Source: SWIFT Watch

The approval from the International Monetary Fund (IMF) to add the

RMB to its group of reserve currencies, or Special Drawing Rights (SDR) basket, marked a milestone for the yuan in November last year, as did the launch of China’s Cross-Border Inter-Bank Payments System (CIPS) in October 2015, which allows banks to clear cross-border payments without having to use an offshore RMB centre.

Chinese authorities and policy-makers are taking a very active hand in promoting the RMB’s usage internationally. Over the last few years, the People’s Bank of China (PBOC) has applied a “seven-engine” approach, which includes:

• Launching new offshore RMB clearing centers;

• Establishing more free trade zones;• Expanding currency swap contract

coverage and amount;• Further liberalisation of capital account

items;• Introducing new RMB investment

schemes;• Setting up new multinational financial

institutions; and • Direct quotations with the RMB and

widening RMB trading bands.

Although the RMB’s road to internationalisation is a long one, these efforts have meant that the influence of the

RMB in global markets is showing little sign of abating.

In July 2016, the SWIFT RMB Tracker data showed the RMB take back its position as the fifth most active currency for global payments by value with a share of 1.90%, a slight increase from 1.72% in June 2016. When one considers that, just three years ago, the RMB was ranked in 10th place as a world payments currency and number 7 in 2014, this is considerable progress.

What is even more impressive than the RMB’s ascent to a top five global payments currency is its activity share in the issuance of letters of credit by value. In 2015, SWIFT data showed that the RMB

The use of Renminbi in trade financeDespite china’s continued economic slowdown, the internationalisation of its currency, the Renminbi (RMB), continues to make good progress: over 1,800 financial institutions are now using the RMB for payments with china and Hong Kong.



64%

29%

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Value of LC distribution USD vs CNY

by volume 2015 H1

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Value of LC distribution USD vs CNY

by volume 2016 H1

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USD: -2%CNY: -12%

Average valueper deal for 1M + bucket

USD: -7%CNY: -7%

Figure 2: Renminbi mostly used in high-valued letters of credit

Source: SWIFT Watch

CNY 0.4

USD 0.7

All currency

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Figure 3: trade Finance Renminbi as an international trade settlement currency

Source: SWIFT Watch

stole the silver medal position, overtaking the euro in Q4 2013, as the second most-used currency for documentary credit transactions after the US dollar (which remains the leading currency for documentary credits with a share of nearly 84%), increasing in value from 7.3% in January 2013 to 9.1% in July 2015.

SWIFT trade finance volumes show that the Asia-Pacific region continues to register great volumes of MT 700 (the SWIFT message type that is used by issuing banks when opening a letter of credit), with a 72% share of imports and a 76% share of export of the world traffic (where ‘traffic’ refers to live messages sent over SWIFT) in 2015.

Equally, the top corridors for RMB letters of credit in 2015 were China, Hong Kong and Singapore, with around 54% of all letters of credit by value being sent by banks between China and Hong Kong, followed by nearly 30% of flows between China and Singapore1.

The increase in volume of traffic out of Asia-Pacific signifies the growing importance of the region as a trade finance hub and the potential of the RMB in international financial markets.

It is also interesting to examine the value of letters of credit distribution (see Fig. 2). SWIFT data shows that the RMB is mostly used in high-valued letters of credit when compared to the US dollar.

This suggests that major deals negotiated in RMB are likely being driven by large corporations within APAC, most likely for commodity-related trade activities (CNY: 67% in H1 2015 vs. USD 7% in H1 2015). The drop-off in the use of the RMB for high value letters of credit in H1 2016

is probably due the slump in commodity prices, as well as the volatility of the RMB during August 2015 and January 2016 and therefore importers and exporters would have adjusted to using other currencies (USD or Euro). Further to this, an increased number of transactions are taking place via open account, resulting in a decline in use of trade finance instruments.

That said, the RMB’s share of total letters of credit by value has tailed off slight this year. The graph below shows its activity share had fallen to 4% in Q1 2016. Although, given the dominance of Asia-Pacific countries in using letters of credit and documentary collections to finance trade flows across Asia in the RMB, a diversification of the corridors of

these transactions outside of, for example; China-Hong Kong and China-Singapore, would drive the use of the RMB as an international trade finance currency even higher.

Explanations for this drop off include recent global– and particularly Asian – market volatility. Offshore RMB usage has clearly been impacted by this, as well as the broader slow-down and correction of the Chinese economy. However, another key reason for the fall in the RMB’s share as trade financing currency could be related to the move to open account using clearing centre processes.

Hong Kong is currently the world’s largest offshore RMB centre, processing 71% of RMB payments in value2 and,

The increase in volume of traffic out of asia-pacific signifies the growing importance of the region as a trade finance hub and the potential of the RMB in international financial markets.



although more than 110 countries made RMB payments in June 2016 more than 90% of clearance is concentrated in just 10 countries, with London and Singapore playing a key role.

Since September 2015, the PBOC has selected three new RMB clearing centres – including in Argentina, Switzerland and Zambia – taking the worldwide total to 19. However, although we have seen significant improvements in RMB clearing and settlement infrastructures like offshore clearing centres, the various RMB clearing centres still cannot be described as a “unified” clearing system3 , meaning that using the RMB in payments remains a more complex process than using the US dollar.

As a Treasury Today article explains, when a dollar payment is made anywhere in the world, it is routed to New York and cleared almost instantaneously. However, when an RMB payment is made between two locations, the process takes longer because there is no one single location for clearing.

The payment therefore has to be cleared in both the country of origin and also the country of receipt, as well as interacting with China4. The wider implications of this are telling: recent SWIFT data indicates that, over the last six months, RMB adoption in most countries where an RMB clearing centre has been set up is either flat or declining. As per Fig. 4, this is most notable in Malaysia (-63%) and Singapore (-37%).

Decisive factors to achieving the currency’s internationalisation goals include the enhancement of RMB products and services to support the growth of the currency in a manner than is scalable, secure, reliable and resilient, underpinned, of course, by an ongoing focus on standards and compliance, but the expansion of the connectedness of the RMB will be a key dynamic of global efforts: improvements in RMB clearing and settlement infrastructure will be crucial in ensuring that the RMB can regain ground in the share of global of letters of credit by value.

While the RMB has made strong strides both as a global payments currency and as a currency of choice for trade financing, its ascension to internationalisation will continue to be a steady one. A gradual slowdown is to be expected, given the volatile global economic climate and China’s own much documented slowdown.

However, if the aforementioned decisive factors can met and applied effectively there seems to be no stopping the currency on its journey and end destination.

about sWiFt’s Business intelligence portfolio Launched in 2005, SWIFT’s Business Intelligence (BI) portfolio encompasses an entire suite of intuitive tools including analytics, insights, consulting services and economic indicators designed to grow with customers’ business needs.

The current portfolio includes: Watch Analytics, a platform to analyse and report traffic volumes, value and currency by market, message type and region especially focusing on payments, trade finance, foreign exchange markets and securities markets; Watch Insights, visual and business oriented dashboards on a subset of correspondent banking traffic; BI Services bringing value beyond the data, and SWIFT Economics, RMB Tracker and RMB Market Insights report. l

1 SWIFT report: ‘Renminbi’s stellar ascension: are you on top of it?’ RMB Tracker, Sibos 2015 Edition, P9 .

2 SWIFT report, ‘Internationalisation of the Renminbi: Measuring Progress Towards a Global Currency’, July 2016, P7 .

3 Ann Li Khoo, Regional Products and Solutions Director at Citi, cited in ‘RMB hubs are the best choice for now’, Treasury Today, July 2015: http://treasurytoday .com/2015/07/rmb-hubs-the-best-choice-for-now-ttti

4 ‘RMB hubs are the best choice for now’, Treasury Today, July 2015: http://treasurytoday .com/2015/07/rmb-hubs-the-best-choice-for-now-ttti

+7%

-37%

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Please note for the purpose of the following chart, Hong Kong has been removed from the list to show at a comparable scale the evolution of the other RMB clearing centres.

* Including South Africa, Thailand, Qatar, Zambia, Chile and Argentina

United KingdomSingapore

Tahran

South KoreaFrance

AustraliaGermany

LuxembourgCanada

Malaysia

SwitzerlandOthers*

Figure 4: evolution of RmB payments in economics with RmB clearing centres

Payments sent and received by value, excluding China and Hong Kong

Source: SWIFT Watch

While the RMB has made strong strides both as a global payments currency and as a currency of choice for trade financing, its ascension to internationalisation will continue to be a steady one.


Feature: Digital tradeS I B O S S p e c i a l e D i T i O N

A frenzy of new technology has been slowly but surely modernising the

trade finance landscape in recent years. At Sibos 2015, over two thirds of delegates anticipated that in the next four to 10 years, most trade transactions will be conducted digitally.

But the general consensus recently, amongst both banks and Fintech companies, is that the adoption of digital systems in trade has been, on the whole, slower than expected.

One of the main reasons behind this is the fact that out of the entire financial industry, trade finance is in fact the less developed in terms of digitisation.

David Hennah, head of trade and supply chain at Misys, described trade finance as “one of the laggards” in this respect.

Added to this issue is the fact that incumbents are still going through a learning process when it comes to knowledge of the systems and solutions available to them. Ian Kerr, CEO of Bolero, described these trade finance veterans as “the good old paper” camp.

Hennah added that while “it’s fair to say that traditional trade finance (mostly letters of credit) is a very labour and paper intensive business”, it has been “the same way thousands of years”, which is why, understandably, the veterans are cautious when it comes to change.

A majority of the Fintechs were in agreement, stating that this lack of knowledge is also apparent on the borrower side.

“A lot of corporates still do not know that a BPO (bank payment obligation) exists,” said Hennah.

Despite this, the dated paper-based processes surrounding trade finance are threatened by the constant rise in the amount of Fintech service providers and their offerings of attractive digital alternatives that are not only cheaper but faster and more reliable.

“Things are changing,” said Kerr. “It’s safer, more secure and more efficient to not use paper.”

Indeed, Paul Johnson, senior product manager at Bank of America Lynch Merrill Lynch’s global trade and supply chain solutions, said that it you are looking at the ultimate goal compared with where we currently stand, it would seem that we have not progressed very far.

“But if you peel away at the onion, there has been a good amount of progress,” he added.

Block partyAccording to Heather Lee, product owner for trade compliance at Accuity, there have been a number of innovations in the trade finance space over the past few years, many of which are aimed at increasing efficiency in the supply chain.

Examples include e-documents (such as e-bill of lading), smart contracts and the Swift-pioneered Bank Payment Obligation (BPO).

One of the most prominent digital trade advancements to happen in recent times, however, is of course blockchain. This has risen to success – with market implementation already underway – thanks to its ability to offer a solution to one of the main challenges of digitising trade finance: open communication.

“There are many players that need to communicate and have visibility (buyer, seller, insurer, shipper, banks), and no one technology provider can provide a platform for all,” Accuity’s Lee said.

The use of blockchain however “offers a reprieve from these challenges, as the distributed ledger offers a single tech layer that allows systems and parties to communicate.”

So, while the trade finance industry is dragging its feet when implementing digital solutions as a whole, blockchain has proven to be a significant disruptor of the status quo.

Deutsche bank, for example, has expressed an intention to explore blockchain in payments. However, what the bank – and others – have established, is that the way to really drive blockchain forward is through partnerships with digital solution providers.

Indeed, many such partnerships have already taken place.

Rabobank joined forces with Nexuslab, a Swiss blockchain start-up programme, in April this year, in order to foster early-stage blockchain ventures across Europe. The Dutch bank is exploring blockchain technology in four fields: international payments, micropayments via the Internet of Things (loT), conditional payments, and smart contracts.

There has also been a trend for the big banking players to put competition aside and collaborate on various Fintech solutions together.

Merrill Lynch and HSBC, for example, announced a partnership with the Infocomm Development Authority of

Progressing at pace: trade digitisation moves forwardBank’s traditional trade finance businesses face potentially disruptive threats, as the demand for digital instruments that can take over from archaic paper documentation is becoming more apparent than ever. Blockchain and the BpO remain vital in this progression, but their value and deployments still need to be recognised further, in addition to a fully integrated trade finance platform that is applicable to all parties, in order to achieve worldwide adoption of trade digitisation. Merle Crichton, eMea Reporter


Feature: Digital tradeS I B O S S p e c i a l e D i T i O N

Singapore (IDA) to develop a prototype solution for blockchain trade finance. The blockchain fabric of the Linux Foundation open source Hyperledger project mirrors a paper letter of credit by sharing information between exporters, importers and their respective banks on a private distributed ledger.

“It’s really exciting to have a valid proof of concept,” said Vivek Ramachandran, global head of product for HSBC’s trade finance business. “Letters of credit are an important part of the trade system, but they are based on twentieth century technology.”

More recently, however, Barclays announced it had completed the world’s first blockchain trade finance transaction, through an alliance with an Israeli blockchain start-up called Wave.

The letter of credit transaction between Ornua (formley the Irish Dairy Board) and the Seychelles Trading Company is the first to have trade documentation handled on the new Wave platform, with funds sent via Swift (pp 24-25).

The initiative will save time and costs for the bank’s clients, and ultimately aims to “transform trade finance for businesses around the world.”

The new blockchain technology developed by Wave uses the distributed ledger mechanism to ensure that all parties can see, transfer title and transmit shipping documents and other original trade documentation through a secure and decentralised network, hence eliminating many of the current inefficiencies in international trade.

Although Lee did admit that it is difficult to imagine blockchain gaining mass adoption in the near future, as many are still trying to digitise trade documents by OCR technology, “it may be that the perfect storm needed for disruptive innovation is forming.”

Further solutionsBlockchain’s older sibling, the BPO, has also received a lot of attention since its inception in 2014.

The BPO represents a “new approach to automating the world of supply chain finance,” according to Misys’ Hennah.

There is a rising trend of banks moving away from traditional letters of credit into open accounts, hence a solution in the form of BPO has been welcomed as a solution for that segment of the market.

The instrument has also opened up opportunities for partnerships

among Fintechs themselves, signalling collaboration instead of competition.

In this way, Misys, the global software company, is partnering with electronic trade specialist essDocs.

This represents “a good example of taking two concepts (BPO and bills of lading) which separately have had limited attraction in the market, but by combining the two, you come up with a more compelling value proposition,” according to Hennah.

Hennah revealed that the two Fintechs are working in a strategic partnership to integrate their solutions, which will subsequently “border-market traction particularly with the banking community.”

Within the banking community, Merrill Lynch is working very closely with partner banks, in addition to exporters and importers, to close BPO transactions.

alternative avenuesHowever, there is the concern among banks and technology solution providers alike that there is too much of a focus on the BPO when discussing the transition to a fully digitised trade finance space.

“As an industry, we tend to limit the idea of digitalisation of trade flows to BPOs or eUCP letters of credit,” Johnson said.

In addition to eUCP electronic presentations, Merrill Lynch is also conducting a lot of basic digitalisation of invoices around ordinary letters of credit.

By digitising these processes, customers can benefit from a speedier preparation of documents and a reduction of human errors, allowing exporters to offer more competitive pricing.

In turn, this means buyers can claim the goods earlier by providing electronic copies to the domestic bank, rather than waiting for the process of the original paper documents being sent.

The drive for electronic presentation for trade documents has mainly been led by commodity companies for large value shipments, according to Bolero’s Kerr. The reason behind this drive was a need to address the ongoing issue of the time lag between the arrival of the vessel and the arrival of documentation.

“Digitising those flows has the biggest pay off in terms of cash flows and balance sheet impact for the client,” added Johnson.

While on one hand the price downturn in the commodity sector has slowed digital progress, Kerr contests that “when times are tough, that’s more of a reason to

insulate yourself from price volatility and being able to recognise the value of the transaction more transaction through the presentation of electronic documentation.”

Similarly, Societe Generale’s Thierry Roehm, senior advisor for innovation and digital transformer for trade services, and Anne-Claire Gorge, head of product management for trade services, point to the wider economic climate as a driver to digitisation.

Universal adoption?All parties in the discussion of digitising trade have identified one essential requirement if trade is to move close to universal adoption: a solution to integrate the process.

“Unless you’ve got a complete value chain, where everyone is bought into the concept of end-to-end digitisation, you’re not necessarily in a position to realise the benefits either in terms of cost reduction or in terms of a new generation,” said Hennah.

There needs to be a multinational and multi-business channel for banks to leverage all the “big data” and to also communicate and interact with their corporates.

Furthermore, in terms of progression, “you are only as strong as the weakest ‘link’ in the chain,” Johnson stated. “Everybody involved in the broader supply chain sits on the digital continuum.”

SocGen’s Roehm and Gorge, however, do not believe that one solution will win. The first scale for large scale adoption is to have the systems widely used, “as there are a very small number of players.”

To move ahead, two main areas of improvement need addressing: firstly a solution to secure invoicing and secondly, to finance a new way on securing trade translations. “I would say that resistance to change is always a factor but one thing we need to fix as an industry is to start creating network effects around the transformation,” said Marc Delbaere, head of corporates and supply chain markets at Swift.

Even the Fintechs admit that they are only one part of the trade finance value chain.

“We have to work together with others,” said Bolero’s Kerr. “One size does not fit all. It is important to be open with adjacent space solutions – this will lead to greater adoption.” l

For more information contact:[email protected]


Feature: iGTB TradeS I B O S S p e c i a l e D i T i O N

For banks providing trade finance products, their time in the sun is

over and the landscape has been engulfed by dark clouds. From its position as poster child of politicians, the banking community, regulators and governments alike; the trade business has temporarily slipped from favour.

Expectations that trade products would prove a miraculous panacea – one that would energise stagnating global economies, improve financial inclusion and plug SME funding gaps – have not been met.

A multitude of factors, including declining margins, return-on-equity pressures, and the increasingly heavy burden of complying with changing regulations, have led to a lot of soul-searching by banks on the viability of the trade finance business. In addition, stagnating revenue lines; the fragile credit environment; plunging commodity prices; subdued oil prices; slowing economies; and the constant threat of punitive strictures and fines for anti-money-laundering- (AML) and sanction-related issues, have not ameliorated the industry’s difficulties.

Protectionist policies by national governments and regional trade groups further complicate the equation – just take the example of importing textiles into Turkey. An Indonesian exporter to Turkey must pay a landing duty of 25%, while exporters from Malaysia and Korea are required to pay only 8% due to their bilateral Free Trade Agreements. In another example, countries not part of the Trans Pacific Partnership (TPP) may lose out when exporting to the US; the current standard import duty for cotton garments into the US is 19%, which non-TPP members pay, but TPP members, such as

a Vietnamese supplier for instance, would be exempt from – resulting in a hefty difference in cost.

Such policies lead to inefficiencies, since the most efficient producers may get penalised because cost of capital, better production capabilities or quality of goods are not visible; instead, protectionist policies skew cost and therefore procurement decisions. In a utopian world, these imbalances would be removed and global trade markets would be a place where the best-in-class provider wins. Unfortunately, that is still a dream and not a reality.

Regulation: albatross or necessity?Various regulatory bodies taking their own view on the correct approach to regulating banking organisations in their jurisdictions, has led to a fragmented global regulatory environment. This means an uneven playing field for banks – for example, fulfilling Know-Your-Customer requirements varies from jurisdiction to jurisdiction, thereby requiring banks operating in multiple jurisdictions to incur greater financial and time costs to ensure compliance with all of them.

Basel III regulations are redefining the playing field for the trade finance business through their focus on liquidity, leverage and capital, and by encouraging good discipline by forcing banks to consider returns over revenues. Nonetheless, the approach to calculating risk-weighted assets and the attendant capital requirements may vary not only between countries but even between banks domiciled in the same jurisdiction since internal credit modelling systems of banks differ. This, too, can have the unintended consequence of impacting competitiveness as banks with liberal credit

Trade finance in a new world of increased regulatory scrutiny and fintech onslaughtAnand Pande, Senior advisor Banking intellect iGTB and Founder of The Growth paradigm partnership

a multitude of factors, including declining margins, return-on-equity pressures, and the increasingly heavy burden of complying with changing regulations, have led to a lot of soul-searching by banks on the viability of the trade finance business.

Anand Pande, Senior Advisor Banking Intellect iGTB and Founder of The Growth Paradigm Partnership


Feature: iGTB TradeS I B O S S p e c i a l e D i T i O N

modelling approaches could price more aggressively than their conservative peers, and still be able to show the same return on equity.

Other regulations that weren’t entirely thought-through led to unnecessary distractions as well as time and money being spent on mitigating their potential harmful impact. A recent example was the EU Bank Recovery and Resolution Directive Article 55, which was scheduled for implementation in January 2016. The regulation, like many others, was part of the post-financial crisis fall-out and was intended to immunise governments and public finances having to rescue troubled banks. The intent of the regulation was to instead place the onus for bail-in requirements for distressed banks onto investors.

This was a good step in the right direction. However, the directive stipulated that trade finance instruments, including letters of credit, were included on the list of bank liabilities that would be written down if the bank went under. The regulation implied that all letters of credit issued by banking institutions domiciled in the EU should include a clause explicitly stating the above. This would have led to such L/Cs being rejected by non-EU-based exporters – thereby placing further strain on EU banks’ business models. Fortunately, the implementation of the legislation has been delayed to allow for further consultation on these concerns, raised by industry associations and the banking community.

On the other hand, regulations such as the EU Late Payment Directive and the soon-to-be-implemented PSD II (December 2017) are helping move the industry towards a more transparent, fair and competitive landscape where companies are not held captive by their banks or their dominant procurement counterparties. PSD II aims to bring transparency to pricing for any kind of payment products in Europe, including payables financing. The regulation also aims to put in place well-ironed-out systems for the timely redressal of complaints. This will necessitate some investment into standardising the complaint management process with firm deadlines on complaint resolution. The opening-up of payment services to payment initiation service providers will mean a drop in correspondent banking charges for cross border transfers, as well catalysing banks to streamline and improve their settlement processes

correspondent banking: underpinning global tradeCorrespondent banking is another vital ingredient for the smooth running of the trade business. But in its current form it is on its last legs – as a business it must reinvent itself in order to recover and succeed in the new world of banking.

Global trade in goods and services is significantly driven by small and medium enterprises (SMEs). These firms primarily bank with Tier 2 and 3 local and regional banks. Yet banking SMEs that operate in countries with particularly large geographical dispersion – where the corporate is located in distant parts or smaller towns of large countries such as Russia, Brazil, China, India or parts of Africa – brings additional complexities. The due diligence required for such corporates, their smaller local banks and distant locations, makes the process of ensuring robust and timely compliance checks challenging.

Heightened regulations are making even simple activities such as advising letters of credit difficult as the exporter’s bank is required to be fully conversant with all the details of the transaction, as well as have an in-depth understanding of the business of the issuing bank. The advising bank cannot rely on third party KYC providers, as the bank is still liable for stiff financial fines in the event of a breach. This is making correspondent banking non-viable for many, and therefore resulting in banks scaling down their business. The same holds true for the clearing and settlement of open account transactions. These knock-on effects may impede global trade flows.

The way forward, in my opinion, is for larger, dominant local banks in each country to play a leadership role, where they act on behalf of their smaller domestic banks. The former – call them parent banks – are responsible for ensuring that the child (smaller local) banks in their charge are compliant. Global and larger regional banks would then use these parent banks as intermediaries for trade transactions with that country. Sophisticated tools such as web scraping, artificial intelligence and natural language processing-driven algorithms, can also be leveraged for deeper, more cost-effective, compliance and AML checks to further bullet-proof these processes.

the fintech horizonExpectations and excitement have been high for non-bank fintech providers to

replace banks by driving efficiencies across the supply chain, providing easy access to credit, helping SMEs access capital and removing the inefficiencies and high transaction costs that plague the cross-border payment industry. Whether online peer-to-peer lending platforms, invoice financing, working capital financing or cross-border online remittance companies, non-bank Fintechs from North America, Europe and Asia continue to try to bring sustainable and scalable commercial propositions to market. These platforms are cumulatively financing tens of billion dollars of transactions, while the traditional financing market continues to account for high double-digit multiples of trillions of dollars.

A cause of serious concern and worry is that regulations for these fintech companies are not as stringent as banks. Most Fintechs need to invest in setting up strong compliance systems in order to screen against AML, financial crimes and terrorist financing. We have recently seen in the tragic case of the Paris bombings how even a simple layering approach of aggregating small amounts of payments can wreak havoc on the world. In another case, an online lending platform facilitated a loan for the weapon used to kill innocents in the US San Bernardino shootings. The Liberty Reserve digital currency case is yet another example, where criminals used the money transfer service to move drug trafficking money across multiple countries. The transaction values on these platforms are still small – but not small enough to prevent terrorists and criminal organisations from using them for illicit gains. For the world to be a safer place, we need regulators to demand the same amount of compliance and due diligence from fintech providers as they do from banks – and sooner rather than later.

Finally, in order for Fintech companies to provide scalable commercial propositions and start offering meaningful competition to banks, they need access to deep pool of capital and loan origination capabilities and a different approach to credit models. This way, the ‘Frisbee’ of capital that they throw at borrowers is guaranteed to return safely – and is caught to minimise bad loans, along with robust compliance and AML systems. This would, in turn, boost confidence in these ventures and not lead to investors running away at the first sign of credit or compliance trouble. l


Feature: Multi-bank platformsS I B O S S p e c i a l e D i T i O N

For large organisations, the costs and fees associated with international

trade can soon mount up as central visibility and control over thousands of instruments are lost in a thicket of processes and proprietary systems. A corporate with global operations may have hundreds of credit lines and of thousands of guarantees open at any one time.

Keeping all of them updated and managing them efficiently to avoid unnecessary bank fees, costs and duplication becomes an uphill task in the absence of a consolidated overview provided by a single, digital platform interfacing with every bank required.

It is easy, for example, to incur high banking costs, simply as a result of maintaining credit lines when they are no longer required.

Banking bonusesHowever, there are definitely valid reasons for having continuing relationships with multiple banks.

Firstly, banks have different areas of expertise, whether in products, trading zones or particular countries and home jurisdictions – all of which corporates need to make use of.

Secondly, having commercial relationships with several banks gives a corporate the opportunity to negotiate the optimum credit deal for a transaction. Thirdly, the involvement of several banks spreads the risk and reduces premiums when financing high-value transactions.

These are the advantages – but the distinct disadvantages of dealing with banks through traditional methods are now more apparent than ever.

Shifting to multi-bank platforms makes a world of difference around the globe

coping with all the uncertainties in international trade can be hard enough without the day-to-day difficulties of managing credit lines and guarantees provided by multiple banks, finds Simon Streat, Vp strategy, product and marketing, Bolero international.

Simon Streat, VP strategy, product and marketing, Bolero International



Overcoming the difficultiesFor a start, each bank will have its own distinct IT system and compliance processes, requiring corporate customers to go through the tedious, time-consuming and potentially confusing process of logging into a different portal and going through security checks and passwords every time.

More significantly, when there are thousands of documentary credits and guarantees, it becomes incredibly complex for a corporate to keep on top of every instrument. The treasury department must be able to see each instrument or document and ensure it is updated and employed in the most cost-effective manner possible.

A large organisation, for example, may have local offices or subsidiaries that obtain their own bank guarantees, which makes it very difficult for group treasuries to see and manage centrally.

It is still the case that in many corporates, spreadsheets are employed for this function. Yet, even where organisations have their own treasury management systems, reconciliation and establishing degrees of exposure can be very problematic when there are so many instruments behind deals worth billions of pounds. Interfacing with bank systems in these circumstances is fraught with difficulty and potentially very time-consuming.

ease and efficiencyHowever, corporates are increasingly consolidating their handling of all these processes and instruments on a single third-party platform, handing themselves huge gains in man-hours, visibility and, importantly, substantial savings in bank fees and costs.

Vastly increased visibility of credit lines and guarantees on a web-based platform gives a consistent view regardless of location. The result is the more efficient use of credit lines and big savings, to a degree that can never be achieved by any other means.

It gives a treasury, for example, the chance to call down credit 10 or even 20 days earlier, potentially benefiting the organisation by 19 or 20 base-points – a significant saving on large amounts of money. The level of visibility provided by a multi-bank platform also means existing credit lines can be utilised without all the fees and processes required to set up new ones.

guaranteesWhen it comes to managing trade guarantees, the burden on a corporate is no lighter than with credit lines. Large companies commonly have guarantees with dozens of different banks. A handful of staff members have to be available to manage a process that, if decentralised, can be extremely difficult to maintain and control.

A large utility company in southern Europe, for example, routinely had 12,000 outstanding guarantees as a result of a distinctly old-school approach to dealing with multiple bank partners. This is a multi-national organisation with subsidiaries in Europe, Asia and Latin America.

The organisation had to deal with large numbers of issuance and amendment requests in relation to guarantees each day. Yet its guarantees were managed by means of a customised solution where data was

entered manually for reporting purposes. The process was heavily labour-intensive

as guarantees were requested of banks on paper with authorised signatures applied physically. Keeping data up-to-date on such a system is time-consuming and prone to errors, requiring additional communication with the bank at reporting time.

However, once the company had shifted to a multi-bank platform, authorisations were hugely accelerated and the list of outstanding guarantees was slashed. Data quality improved through integration with the banks’ systems, while centrally, the organisation gained oversight of guarantee issuance, retaining the flexibility necessary to support their remote hubs.

international operationsOn an even larger global scale, an engineering and technology company had 38,000 individual guarantees issued in more than 100 countries and 200 subsidiaries. The result, almost inevitably, was that it was spending too much time arranging and drawing down what it required. Not only was it inefficient and costly in terms of working capital, its decentralised model was only too capable of losing the company business.

A regional treasurer within the company could suddenly be faced with the request from a project manager for a bank guarantee to be arranged in 24 hours, with failure to obtain it likely to jeopardise a tender for a contract. With time very limited, the treasurer would have to go to the company’s banks with the required wording in order to secure the guarantee.

In common with many multi-nationals,

an engineering and technology company had 38,000 individual guarantees issued in more than 100 countries and 200 subsidiaries. The result, almost inevitably, was that it was spending too much time arranging and drawing down what it required.

Simon Streat, VP strategy, product and marketing, Bolero International



the company would frequently find it was a matter of days for the guarantee to arrive after submitting a draw-down request. If initiated through a paper-based format, lenders needed time to process the request and transfer the information internally from their front office to their back office.

The appropriate distribution of credit generated even more headaches.

the digital approach deliversThe company decided it needed to tackle

these problems that were clearly having an undesirable impact on performance. After thorough consideration of the options, it went about designing and developing a strategy to consolidate the bank guarantee application process at the group level, and to shift the system from paper to electronic instruments.

Today, on a consolidated basis, the company is now paying far less for credit and is enjoying substantial reductions in unfavourable credit lines and significant direct cost-saving on guarantee prices. The company’s subsidiaries, on the other hand, are no longer required to complete local credit documentation for banks, unless local regulations demand it.

Oiling the machinerySimilar streamlining and cost-reductions have been achieved by an oil and gas services company, which because of the nature of its business, had a decentralised process for dealing with standby letters of credit, spanning the US, Singapore, Italy, France and the UK.

At any time, up to $1 billion may be committed, with no single bank able to provide the required credit line. Inevitably, this meant the company had to deal with multiple banks, systems and processes. Centralised control was very problematic, while obtaining consolidated information in timely fashion was near-impossible.

The company decided to implement a multi-bank platform. It was the most obvious solution, with roll-out to the majority of its banks achieved in less than six months. Since this was a SaaS solution, there was no need for investment in hardware or software infrastructure. Among the many benefits that flowed very quickly from this solution was the ability to track expiry, so that open instruments were closed when necessary to avoid cost over-runs.

Its process for issuing standby letters of credit was streamlined and deployment of the platform gave it more leverage with its

banks, helping to push down costs. Right across its relations with banks it has gained a much sharper picture of its costs through a new centralised ability to check charges.

the benefits of the right technologyOf course the technology that supports this process is critical – without it, such gains in cost and efficiency would be unachievable. The deployment of electronic documents and messaging, for example, ensures that once a written agreement has been put in place, the company’s subsidiaries can access the funding and secure a guarantee quickly. The electronic messaging and documents remove manual intervention and errors as it is integrated directly into back office systems both at the corporates and banks.

As a result of this automation, guarantee issuance time for the company has been substantially reduced as the guarantee instructions no longer need to go through a bank’s manual processing centre.

the future is single interface and multiple gainsFull integration with back-office systems, seamless communication with panel banks and an effective system of alerts, all make the single multi-bank platform the future for hard-pressed treasuries striving to improve cash-flow management and the deployment of working capital.

Put simply, when major companies engaged in international trade have access to more quotes from banks they are far more likely to obtain better deals that drive down costs. The speed at which they obtain those deals brings major gains in liquidity for the entire organisation.

For a seller, the impact of integration through multi-bank platforms ripples out right across the supply chain, eliminating

the kind of errors that have expensive consequences such as can occur when shipping instructions are created from advised letters of credit, or when re-presentations are made unnecessarily.

Visibility and traceability also radically reduce opportunities for risk and fraud, while scalability is augmented through automation. An organisation is no longer so reliant on highly-skilled, but expensive and hard-to-find staff. The multi-bank platform works in conjunction with core ERP, finance, treasury and logistics systems, occupying a very small footprint and running on low overheads.

The advantages for sellers, for instance, are to be found in accelerating their time to cash without exposing their organisations to greater risk, in the process optimising their entire financial and physical supply chains. For buyers they are able to get their goods released sooner and are able to simply and easily reconcile their financial and supply chain information.

Despite the complexity of international trade processes, efficiency gains of this order can be achieved in relatively short periods of time. This is particularly so when deploying a cloud-based, modular solution that allows for the targeting of quick wins.

As the global banking network expands, the treasury of any successful corporate involved in major trade transactions will have to shift to a single, multi-bank platform built and supplied by providers with an established reputation for total reliability, security and efficiency in international trade finance and banking.

The advantages of a single interface in a globalised world of round-the-clock, multi-bank operations are simply going to be too obvious to ignore. l


Feature: Fintech adoptionS I B O S S p e c i a l e D i T i O N

The trade finance sector has often been reluctant to move forward

technologically, with paperwork often painstakingly slowing down deal flow. But in recent years the gradual adoption of Fintech has begun to pick up steam as financial institutions attempt to reap the benefits of automation.

In the years following the global financial crisis, financial institutions have often had to balance the aims of rebuilding the trust of customers while also ensuring their organisations are compliant with ever-growing regulation.

Some say this has created a vacuum, at a time that cloud computing has come to the fore. This has meant smaller, more agile, Fintech firms have been able to enter the market with fewer barriers to entry.

There has often been hesitance from trade finance bankers to break with tradition and allow the adoption of Fintech. This is often been a result of the difficulty of integrating technology into its existing infrastructure and often its regulatory environment.

“Too often the bank’s fragmented business delivery, fragmented technology and fragmented data severely constrains the bank’s ability to be responsive to these demands,” said Kitt Carswell, vice president and senior offering manager at CGI.

The result is often banks with three or more technology platforms across their business, with various versions implemented in various locations.

Among the other headwinds repeatedly mentioned by industry participants are the risk-averse culture of the industry, rigid governance and siloed business structures.

In large parts, trade is still processed in the same way now as it was 30 years ago. Apart from minor advances in data entry and documentation scanning, banks still rely on laborious manual work to assess whether it is able to, or would want, to process a transaction.

This has meant that calls for improved technology are universal, with the ability to optimise corporates’ supply chains and add to banks’ data operations, offering more tools to cater to the needs of corporates from mobile wallets to improving reconciliation software.

The dematerialisation of documentation has been one of the most sought after goals in the industry and there has been a recent improvement in its ability to attain it. The advent of new payment instruments, such as the bank payment obligation (BPO), and also a willingness from banks to accept electronic original documentation, has created a movement in the right direction.

Many Asian countries have taken the initiative in doing so ahead of their western peers. The use of optical character recognition has also increased, with computers now able to read and extract relevant information from documentation, requiring human intervention only necessary to validate results.

“When we launched the New York FinTech Innovation Lab in 2010, ‘Fintech’ wasn’t a word spell check recognised,” says Robert Gach, managing director for Accenture Strategy, capital markets.

A mere six years later, investments have been pouring into the sector, with almost 3,000 Fintech companies attracting a combined $50 billion. Some of these companies have broken the $1 billion

valuation mark and it has become clear that financial institutions must adapt or collaborate if they are to avoid losing market share.

Joining forcesCollaboration has taken off in a big way. According to the New York Fintech Innovation Lab, nearly 90% of applicants stated that they are working in partnership with financial institutions rather than in competition.

It has provided opportunities for lenders to create new business, often digitally, while also reducing operating costs and risks. The alternative was to go it alone and risk facing competition from nimbler companies, potentially threatening revenues.

The threat is real, according to Ernst & Young. As awareness of Fintech products increases, so have the adoption rates of consumers that are bypassing traditional options from banks in favour of the newer products. Hong Kong in particular has been an early mover, with the highest adoption rate in EY’s Fintech adoption index.

“The adoption of Fintech products is relatively high for such a new sector, so the risk of disruption is real. As Fintech continues to catch on among consumers, traditional financial services companies will have to reassess their view of which customers are most at risk from the new competition and step up their efforts to serve them effectively,” said Imran Gulamhuseinwala, EY global Fintech leader.

Tough competition and floods of liquidity in the trade finance sector have meant that pricing and margins have been squeezed, making the sector more expensive than ever.

Research by Accenture said that the threats to revenues were most significant in the payments and lending spheres, with their relevance as market leaders

Fintech adoption gathers steamFintech providers and financial institutions are moving beyond a reluctance to partner up and recent years has seen a more collaborative approach than before.Jason Torquato, americas editor, examines whether this trend is here to stay.

Too often the bank’s fragmented business delivery, fragmented technology and fragmented data severely constrains the bank’s ability to be responsive to these demands.

Kitt Carswell, vice president and senior offering manager, CGI


Feature: Fintech adoptionS I B O S S p e c i a l e D i T i O N

and relationships with customers under threat. Conversely, collaborating with Fintech firms would reduce operating costs, primarily in back office operations while also generating new business in the form of deposit accounts and payments.

Some of the most obvious examples of this collaboration are HSBC’s investment in Kyriba, a treasury management software company, and BBVA taking a stake in supply chain management firm Taulia. Citi has also been backing Fintech firms through its Citi Ventures offshoot.

But collaboration with former competitors does not mean that the industry has moved fully into the adoption stage.

“Adoption means real customers are using the new technology, it is generating revenue and reducing costs, freeing up capital and having a real impact on the financial institution’s bottom line,” says Gach.

Capital expenditure on IT has been surging as spending grows to deal with regulatory and compliance issues. The build-out of regulatory-compliant teams and systems has meant that many institutions have not had the ability to closely examine the prospects and implications of innovation, something that could have likely brought these costs down.

Increased anti-money laundering and know-your-customer (KYC) regulations have not aided the speed at which business can be done either. More stringent requirements have meant that the processing of a letter of credit that could have been completed in just four hours now takes between one and two days, according to Valeria Sica, global trade services head at Citi. This can result in goods sitting idle, costing companies at both ends of a trade transaction. Whether adoption will truly become a success is dependent on how eager each financial institution is to incorporate innovation and Fintech into their ethos.

Most successful adopters have made innovation a priority. BBVA chairman Francisco Gonzalez said at the Mobile World Congress last year that he envisions the bank essentially becoming a software company in the future through the development of its Fintech capabilities. The bank came to the realisation that using archaic technology was not only increasing its costs unnecessarily but also jeopardising its spot as a market leader.

The intent to adopt technology has often been evident in financial institutions, but

without the backing of decision makers, projects will often go nowhere. The profile of innovation must be elevated within organisations if it is to be a successful endeavour.

Maria Gotsch, the president and CEO of The Partnership Fund for New York City said: “What you’re starting to see now is that people that are thinking about innovation are being brought up closer to the C-Suite. Identifying and incorporating innovation is becoming more core to strategy.”

Early adopters have yielded huge time and cost savings. The implementation of robotic process automation early on in a transaction has minimised further areas downstream and rather than hiring new staff for processes, companies have been able to benefit from a virtual workforce, and existing staff were able to concentrate on high value-added areas.

“The pace of innovation has accelerated quite significantly in the last three years or so, which is great to see. Banks in many jurisdictions are becoming more comfortable with external companies,” said Andrew Irvine, head, Canadian commercial banking & BMO Partnerships at BMO Capital Markets.

“There are somethings we could do better ourselves but we need to be honest and realise that if we can accelerate solutions by partnering then we should.”

the cloudCommonwealth Bank of Australia is one of the financial institutions that tackled innovation head on. By moving storage and application testing for its financial processes to the cloud, it has been able to slash its costs.

Creating new servers for its back-office operations that used to take weeks and cost thousands of dollars are now able to be completed in minutes for cents. The bank estimates that when regulatory guidelines for cloud technology are finalised, the industry could save up to $4 billion annually through cloud-based trade processing. An unintended consequence of the adoption would also be that regulatory compliance and risk management is more robust than ever before.

The migration to open account trade over the last few years has been very important to corporates, in particular ensuring greater integration with their core systems and their relationship banks.

“They want sophistication in technology but also to find a common ground between

banks, so there has been a need for multi-bank type platforms when looking at the largest global companies,” said Peter Grills, managing director, trade finance at BMO Capital Markets.

Grills said that BMO uses platforms like CGI Trade 360 for open account trade, which some of its banking counterparts do, in order to provide services for corporates, while on the payables side it works with PrimeRevenue.

The partnership with Fintech firms can work both ways, Grills said. “Part of the partnership with Fintech firms is to help with our duty of knowing our customers and filling their needs. But also to deal with world class partners who have a broader perspective of the market. They deal with people we don’t and pick up market intelligence that they’re inclined to share with us and we can become smarter than we would on our own,” he said.

The tie-up between financial institutions and their Fintech counterparts is growing closer than ever before, with the likely outcome being that unparalleled efficiencies are achieved. The impact could be larger for smaller banks trying to contend with their larger peers, with scalability allowing them to compete on a level playing field that would otherwise have not be possible. l

The pace of innovation has accelerated quite significantly in the last three years or so, which is great to see. Banks in many jurisdictions are becoming more comfortable with external companies.

Andrew Irvine, head, Canadian commercial banking & BMO Partnerships at BMO Capital Markets


Feature: Messaging dataS I B O S S p e c i a l e D i T i O N

Long considered an impenetrable space dominated by a few, the

financial services industry is currently riding a giant wave of entrepreneurial disruption, disintermediation, and digital innovation.

Recent developments, such as regulatory pressure; the criticality of business intelligence; and customer experience, are impacting banks more than ever. Financial institutions (FIs) are caught between increasingly strict and costly regulations, and the need to compete through continuous innovation. As a result, the competitive position of incumbent institutions is at stake.

today’s challenges determine tomorrow’s needsFIs face a series of strategic challenges that will determine their own future, including:

• Regulatory compliance – between 2008 and 2013, US banks paid more than $100 billion in penalties and settlements.

• Business intelligence – turning data into a competitive advantage is nowadays seen as the Holy Grail. However, only a few succeed to become masters of their own data and conquer Big Data problems.

• Customer service – Big Data and advanced analytics offer a transformative potential to predict the “next best actions” and understand customer needs.

• Risk management – regulatory bodies now require information management to be a foundational effort within all FIs for purposes of risk management, however, the responsibility around data quality is fragmented and unclear within the organisation.

These challenges pose questions over how FIs will be able to face such obstacles and in a cost effective way, which strategy will help them survive and how technology can support the new needs in this journey.

digitisation and regulatory compliance are transformativeThe financial services industry faces an unprecedented acceleration of digitisation and regulations, which in turn leads to a series of major impacts:

• The increased digitisation produces new electronic information, digital processes, data semantics and structures as well as new IT systems within FIs.

• The extended digital environment leads to higher complexity for staff to find and interpret information given the growing number of data sources.

• As critical information is siloed, enterprise-level reporting, decision-making, customer service and performance optimisation are impaired.

• Working across data sources can be tedious or impossible given the variety of data semantics in use.

• The regulatory mandates make effective information management no longer optional; as per Basel Committee on Banking Supervision (BCBS) 239 regulation, Systemically Important Banks (SIBs) must prioritise addressing gaps in their Risk Data Aggregation and Reporting (RDAR) capabilities. Without these, senior management is unable to obtain an accurate and in-depth picture of the risks the bank faces.

• A siloed approach to information management raises non-compliance risks. Many banks continue to lack the high-quality data capture and aggregation processes full compliance requires.

Turning financial messaging data into business profitAndré Casterman, chief marketing officer at iNTiX* investigates the latest challenge for financial institutions: how to turn messaging data into profit.

Digitisation

Regulation

Growing transactionvolumes

Growing datavolumes

Data-focused regulatoryrequirements

Many data structuresand formats

Many internal and externaldata sources

Pressure for fact-baseddecision making

EnablingDataIntelligibility

the information challenge for financial institutions

Source: intix

The financial services industry faces an unprecedented acceleration of digitisation and regulations, which in turn leads to a series of major impacts.

André Casterman, chief marketing officer at INTIX


Feature: Messaging dataS I B O S S p e c i a l e D i T i O N

Information, whether based on structured and unstructured data, is increasingly seen as the lifeblood of the business. Regulatory bodies identified this too and now require information management to be a foundational effort within all FIs for purposes of risk management and compliance reporting. This has led FIs to recognise their need to become information-centric.

the information management challengeGiven the continuous evolution of their IT infrastructure and adoption of digital processes, FIs deal with a myriad of systems and applications, all with their own software technology, access method, security, user interfaces, data semantics and structures, messaging formats, and more.

This situation does not simplify the work of the business and operations teams who have to face such a complex environment

and rely on a series of unconnected tools to execute their daily jobs. Consequently, activities requiring access to customer and transaction details, as well as history and statistics, are severely slowed down. Examples include handling of customer enquiries, reporting on transactions towards regulators, reporting on SLAs to clients, management information reports and so on.

FIs must consider those challenges strategically:

• First and foremost, they must elevate information to its deserved status of strategic asset. This will help ensure that data is actively managed on enterprise level for its embedded value to be realised.

• They also need to equip themselves with the right technology in order to turn information to their advantage.

However, some barriers exist:

• Integration with legacy systems: many legacy systems make it difficult to extract data and may not be best suited for Big Data technologies.

• Connecting data silos: there is no uniform view of data and most organisations have not integrated disparate data sources given the complexity of the task.

Data integration tools are becoming key to connecting various data sources and data sets, and delivering on the promise of information or data management.

Fis, become master of your dataBy conquering Big Data challenges, FIs will be able to draw a competitive advantage through enhanced strategic decision-making, improved customer service and effective risk management.

Information management technology and governance are key to break down the organisational silos that typically exist within financial institutions to provide a complete picture of an institution’s financial transactions and client information across a myriad of sources. Not only does this make it easy for FIs to respond to the increasing requirements for compliance and reporting, it also provides the opportunity to turn such data into valuable insights and information for the customers’ benefit.

Information management tools will help financial institutions address a series of strategic objectives including: regulatory readiness and responsiveness; enhanced strategic decision-making; faster customer service; effective risk management. In sum, FIs that become master of their own data will benefit from a competitive advantage which they will turn into business profit.

* INTIX helps financial institutions and corporates address financial data management challenges in four strategic areas: regulatory compliance, business intelligence, customer services and audit/risk management . INTIX helps its clients retrieve, consolidate and reconcile any type of financial messaging data and protects them from any IT complexity and obsolescence issues .

TransactionData

tells you where, when and how customersconsume your transaction services

Need for aholistictransactionwarehouse

exposes vital information across all ofyour moving parts of your institution

helps improve customer engagement, optimising service delivery and increasing service profitability

needs to be collected, stored and visualisedin a timely, simple and centralised way.

transaction data is a gold mine for Financial institutions

Source: intix

Searching Reporting Alerting Tracking Publishing

Payments

INTIX Message Warehouse

Tradefinance

Master data

Riskdata

Treasury and

securities

Visibility Control Sharing

transaction visibility

Source: intix

information, whether based on structured and unstructured data, is increasingly seen as the lifeblood of the business.

André Casterman, chief marketing officer at INTIX

16th and 17th March 2017 Ritz-Carlton Coconut Grove, Miami

The ultimate networking experience for exporters, importers, financiers, ECAs, DFIs and multilaterals from both continents

Export & Agency Finance Americas 2017

A Euromoney news and analytics service

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Register before Friday December 9 th 2016.

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Over

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An essential date in the Export Finance calendar Chris Perrins, Director, Export & Agency Group,

Global Trade Finance Division, Mizuho Bank Ltd.

5 REASONS TO ATTEND

1. INSIGHT 2. EXCHANGE 3. INFLUENCE 5. NETWORK4. LEARNGain valuable insight into the latest developments in trade finance from prominent keynote speakers, industry experts, and business and finance leaders.

Exchange ideas in lively discussions specially designed to address the most topical themes in trade finance.

Influence the debates through active participation, whether in the Plenary sessions (via Q&A sessions) or as participants in the breakout roundtables and panel discussions. The Annual Meeting is the most open forum to influence policy and guidelines that govern the trade finance industry.

Develop unique skills to enhance best practices. Keep up-to-date with the policy and regulatory changes affecting the industry through ICC’s market-leading work in standard-setting, market intelligence and policy-making.

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The ICC Banking Commission is the world’s leading forum for trade finance professionals. Our Annual Meeting brings together more

than 400 banking executives and leading policymakers from over 65 countries to discuss the future of trade financing.

Documents

Fintech vs. traditional trade: transition - BAFT · Fintech providers and financial institutions are moving beyond a reluctance to partner up and recent years has seen a more collaborative