Recognising this client need, J.P. Morgan has introduced a pre-shipment finance programme in the US, which leverages its established supply chain finance (SCF) rails to provide early-stage capital, especially to minority and diverse-owned suppliers – driving end-to-end resilience that encompasses every facet of the supply chain.

In this Industry Perspective, Dominic Giordani, executive director, North America supply chain finance product management at J.P. Morgan, explains how this initiative not only addresses liquidity challenges but also supports supplier relationships that are more collaborative from the start, ensuring businesses can navigate uncertainties while fostering an inclusive economic landscape.

Q: How does J.P. Morgan’s pre-shipment finance programme enhance supply chain resilience?

Giordani: If large corporates have learned anything from the last few years, it’s that diversity within supply chains is key to building resilience and adaptability.

We’re seeing more appetite from our clients to engage with a wider selection of suppliers, often as part of specific supply chain diversity, equity and inclusion (DEI) initiatives. However, this is often easier said than done, since small businesses may not be well-capitalised or well-resourced enough to ramp up production in order to fill a larger purchase order when it comes.

By providing impact capital to this segment of underrepresented businesses, we are injecting liquidity into the part of the supplier base that needs it the most, as well as ensuring more stability for our clients’ supply chains.

Q: Small companies often find it difficult to obtain pre-shipment financing because traditional solutions tend to be geared towards post-shipment, post-acceptance solutions. How are you closing this gap?

Giordani: This is a new way of thinking around providing working capital to this underserved small business segment, which often has fewer channels to access bank lending.

Given the current rising rate environment, it is increasingly difficult for small businesses to access the working capital finance they need. While initiatives such as US Small Business Administration loans go some way to help, borrowers need to meet strict eligibility criteria and the process is often quite slow. With this programme, we are making it very easy and streamlined for a small business to get a working capital loan at the very beginning of the process, so long as they have a good commercial relationship with their buyer – and we’re also securing a competitive rate.

J.P. Morgan is putting funds into a securitised structure, and then we work with qualified community development financial institutions (CDFIs), who carry out the loan servicing on our behalf. We are currently collaborating with Community Reinvestment Fund, a large CDFI based out of Minnesota. They understand the market and are top-tier in underwriting loans for small businesses.

The upside of this product is that it does not require an underlying purchase order or invoice. Instead, it is linked to the holistic commercial relationship a supplier has with a buyer, which is a key differentiator in the market and means that suppliers can achieve increased financial stability earlier in the cash conversion cycle.

If a supplier gets a large purchase order, they can easily reach out to J.P. Morgan as part of the pre-shipment programme, and then get underwritten for a loan.

Q: As the cost of traditional lending rises, how important is it for the bank to contribute to greater awareness of trade and supply chain finance among SMEs and minority-owned businesses who might be new to the concept?

Giordani: Our initiative is recalibrating the trade finance landscape by enhancing financial literacy among smaller suppliers, particularly within the SME and minority-owned business segment.

Suppliers can use the funds from our pre-shipment finance programme for essential aspects like payroll and inventory, which further solidifies their role in the supply chain. As they become integrated into the SCF cycle, they benefit from lower rates and can use the generated cash flow to settle their initial loans. This creates an efficient, self-sustaining loop that recirculates capital within the supply chain, delivering stability and growth for these vital enterprises.

By introducing these businesses to end-to-end supply chain finance – and not just as a concept but as a tangible service with accessible capital – we’re expanding their financial toolkit. This empowerment enables them to scale up, meeting larger orders and contributing more robustly to their respective supply chains. For the buyers, it’s an opportunity to engage with a more diverse supplier base with minimal risk. And for J.P. Morgan, it’s about creating a holistic solution that drives financial inclusion, fortifies supply chains, and creates a win-win-win scenario in the marketplace.

Ultimately, our pre-shipment finance programme is a testament to our commitment to financial inclusion, offering an innovative and necessary support system that benefits all participants in the trade finance ecosystem.

Q: How does the pre-shipment finance programme fit into J.P. Morgan’s broader efforts to promote sustainability in supply chains?

Giordani: Our pre-shipment finance programme is a strategic enhancement to our ESG offering, where, in collaboration with third-party rating providers, we enable buyers to incentivise their suppliers with discounted finance rates based on ESG performance. This programme goes a step further by offering tailored loan programmes to qualified small businesses earlier on in the cash conversion cycle.

By committing our own capital and expertise to this programme, we’re investing directly in the success and sustainability of our clients’ supply chains. This isn’t just a product; it’s an end-to-end solution where everyone involved has a stake and stands to benefit.

The post Industry Perspectives: An inclusive approach to diversifying and strengthening supplier relationships appeared first on Global Trade Review (GTR).

Today’s banks must be nimble to meet the fast-changing needs of clients and seize the tech-driven opportunities of the digital world.

Over the last decade, technological innovations have enabled new access modes, such as online banking and mobile apps. This has helped consumers and businesses to migrate away from cash and cheques towards electronic payments. In addition, an increased demand for convenience and speed has resulted in a growing use of contactless and fast payments.

Pioneering a new kind of corporate banking

Digital has long been a key enabler of ADCB’s strategy, helping to drive service excellence and enhance efficiency. The bank’s strong financial position provides the foundation for substantial investment into the technology that is generating expansion across the business.

ADCB’s digital solutions ProCash and ProTrade have consistently exhibited strong growth in client adoption, a clear indication of their trust in the bank’s ability to deliver dependable and highly effective solutions for their cash management and trade finance needs.

The bank’s investment in these two flagship platforms demonstrates its ambitious commitment to digital transformation. The ProCash cash management platform offers highly reliable and secure online banking cash management solutions for corporates. It enables companies to initiate, reconcile and manage multiple payment types online, providing an exceptional level of customisation to meet specific client needs.

Launched at the end of 2018, ProTrade is a digital trade finance platform that provides trade finance clients with the freedom to transact online at any time, from anywhere in the world. ProTrade is designed to streamline and reduce trade cycles, automate supply chains, and lower operating costs, making international trade financing quick, easy, and secure.

Investing in innovation

ADCB continued its digital investments in 2022 and into 2023, rolling out a series of new features for ProCash to improve the user experience, with more enhancements coming soon. These included the addition of debit, credit and virtual card facilities that help clients to track their money in real time and provide a seamless proposition that continues to make banking more efficient.

In the trade finance space, ADCB introduced several innovative digital solutions, including a streamlined document handling process for exporters that has revolutionised the way trade export bills are managed, eliminating the need for the physical exchange of original documents. This accelerates the processing of export documents and leads to faster realisation of export proceeds.

ADCB has also introduced FinTrade, a Software as a Service cloud-based client platform designed to equip businesses with advanced tools for optimising their supply chain finance operations. Through this innovative solution, companies can efficiently manage their working capital and streamline their transactions in real time.

Furthermore, ADCB is investing in APIs and MT798 to make it easier for clients to engage digitally with the bank for their documentary trade solutions while using their preferred platforms.

Meanwhile, the introduction of Swift for corporates has simplified treasury and cash management processes. This automation-driven solution not only reduces the risk of errors but also provides global reach, enabling multinational corporations to manage their financial transactions and accounts with enhanced visibility and security.

Building on its growing reputation as a digital innovator, ADCB recently partnered with Dubai’s Department of Economy and Tourism and Norbloc to automate the annual updating of trade licence details for Corporate and Investment Banking clients. The digital process extracts trade licence details for existing clients via the blockchain platform, streamlining the verification process without requiring clients to provide renewed licences.

Digital corporate banking continues to evolve at astonishing speed. Banks that lack the know-how, resources or ambition to leverage the power of digital to transform their relationships with clients will quickly fall behind. But for those banks like ADCB with the experience and ambition to chart an innovative, digitally driven future, it represents a unique opportunity to seize the moment, building new, closer relationships with customers, reducing costs and enhancing revenue growth.

As part of its future transformation plans, ADCB is actively working on pioneering digital innovations that will further enhance client experience. By harnessing cutting-edge digital technology, ADCB aims to ensure that every interaction is seamless and client-centric, setting new standards for excellence in banking.

The post ADCB sets the pace in digital corporate banking appeared first on Global Trade Review (GTR).

Embedded finance is the art of integrating financial products and services into the core offerings of non-financial companies. Think of it as walking into a bookstore and being able to order a freshly brewed coffee at the same counter where you’re purchasing a captivating new book. Behind the scenes, a separate entity may handle the coffee service, but for the customer, it’s a unified, frictionless experience – a chance to savour a cup of joe while immersing themselves in a literary adventure.

This concept is not entirely novel. Over the years, store cards, car insurance provided by dealerships, and extended warranties for household items have all granted consumers access to financial services alongside their primary purchases. However, recent regulatory changes and technological advancements have ushered in a more sophisticated era of embedded finance. The advent of open banking and the proliferation of application programming interfaces (APIs) have opened the door for companies to seamlessly integrate diverse financial services into their existing offerings.

The growth trajectory of embedded finance is nothing short of remarkable. In 2021 alone, financial services worth a staggering US$2.6tn were embedded into e-commerce and various software platforms. These figures are projected to soar, potentially surpassing US$7tnby 2026, accounting for over 10% of the total transaction value in the US.

Embedded finance takes on various forms, from embedded payments, which expedite online transactions with a simple click, to embedded insurance, investments, and lending. A prime example is the buy now pay later (BNPL) model, where customers are given the flexibility to spread the cost of a purchase over a designated period.

The benefits of embedded finance are a win-win for both companies and their customers. Customers gain access to financial services, such as payments and insurance, without the inconvenience of switching between platforms or dealing with multiple service providers. This translates into enhanced convenience and an elevated customer experience. For businesses, the potential is equally enticing. They can diversify revenue streams, bolster customer loyalty, and streamline the overall customer journey. Moreover, by tapping into a wealth of customer data, companies can offer personalised services, further strengthening their competitive edge.

While the embedded finance phenomenon has predominantly focused on consumer applications, its gaze is now shifting towards the realm of B2B interactions and corporate finance. B2B embedded finance promises to expedite transactions, facilitate financing between trading partners and lower trade barriers. With real-time data harnessing capabilities, companies can optimise processes and access financing solutions seamlessly through B2B platforms. Financial institutions and fintech companies are poised to revolutionise risk assessment, potentially reducing financing costs for businesses. The applications are diverse, encompassing embedding financial services within B2B transactions, streamlining payments, expediting credit decisions and expanding access to working capital.

However, successful implementation hinges on seamless partner connectivity. Taulia, acquired by SAP last year, stands at the forefront, offering embedded working capital tools that trim costs and accelerate liquidity flow. Their deep integration with ERPs ensures accessibility and efficiency while diminishing the risks and expenses associated with manual workflows.

Beyond just enhancing customer journeys, embedded finance revolves around harnessing the wealth of available data. Taulia, for instance, capitalises on invoice data to provide suppliers with more affordable financing options. The greater visibility funders have within Taulia’s platform and ERP, the more confident they become in making financing decisions.

In essence, embedded finance is not only about optimising customer experiences and expanding access to additional services. Concerning trade, it assumes a pivotal role in informing decision-making and democratising access to finance. It heralds an era where convenience and financial empowerment coexist harmoniously, promising to reshape the way we do business and interact with financial services.

Danielle Weinblatt will be present at Eurofinance International Treasury Management in Barcelona from September 27-29.

The post Unleashing the potential of embedded finance: Revolutionising convenience and trade appeared first on Global Trade Review (GTR).

Roundtable participants:

• Azeem Azmi, regional head trade finance, Group Transaction Banking, CIMB Bank
• Pablo Ballesteros, global head of trade solutions, Santander CIB
• Joon Kim, global head of trade finance product and portfolio management, Treasury Services, BNY Mellon
• Sandy Marrone, head of product for trade finance and FX, KeyBank
• Massimo Ortino, head of group correspondent banking, UniCredit

GTR: What are the biggest supply chain challenges currently being faced and how are financial institutions (FIs) adapting their trade finance offerings to address them?

Ballesteros: The combination of the geopolitical risk linked to the war in Ukraine with the tougher macroeconomic environment is particularly challenging for corporates. The cheap liquidity available in the past to build safety stocks, support long-tail suppliers and buyers and enter new markets simply isn’t available now.

Kim: With accessing liquidity difficult for many suppliers across the globe, corporates are facing profound challenges when it comes to securing their supply chains and managing payment risks. We are providing solutions through our robust supply chain financing (SCF) programmes, which act not only as a cash optimisation tool for corporate buyers but as a means of supporting the working capital needs of their suppliers.

Ballesteros: We’ve developed solutions such as pre-shipment structures to help anticipate cashflows, inventory finance, dynamic discounting and buy now pay later (BNPL), which ultimately improve SMEs’ liquidity either by accelerating access to cash or deferring payments. Interestingly, these products are also altering the perception of trade finance from simply a traditional receivables-focused solution to a strategic tool to enhance working capital and manage inventory and supply chains.

GTR: How are FIs innovating to improve the client experience, and where is their focus with respect to moving away from manual, paper-driven processes to digital solutions?

Ortino: Enhancing the client experience is a core objective for banks, and it’s through integration and cooperation with technology providers that we can further progress digitalisation, including accelerating the automation of processes, such as supplier onboarding.

Kim: We are committed to investing in value-added innovations and capabilities to support our clients. And this isn’t always about brand-new solutions and exploring what’s possible for the future. We have worked diligently to enhance our suite of existing trade finance offerings to help overcome challenges here and now. One example relates to the implementation of our outsourcing solutions. Now, rather than clients having to commit to integrating the necessary technology into their back-office systems, our outsourcing solutions can be accessed through our portal. These solutions are designed to result in time and cost savings, and greater flexibility regarding which outsourcing services they need.

Marrone: Banks are looking to streamline trade by creating digital ecosystems that reduce costs and replace paper with digital data flows. These are closed ecosystems where members can record transactions and payment undertakings digitally, most often using a permissioned blockchain. Numerous blockchain consortiums to support this activity have been established, however, there’s a clear need for interoperability between these platforms to replicate in digital form the ‘free negotiability’ of traditional trade instruments. As these systems are tested using real-world transactions, we will most likely see one or two emerge as platforms that enable true interoperability.

Ortino: We need to establish a more cooperative technology infrastructure – an open network where everyone can participate and be included. Legal reform is key to enabling such ecosystems and we are witnessing some advancements. For example, the UK has adopted a model for the electronic transfer of records, which will be key to unlocking not only digital bills of lading and promissory notes, but also potentially other documents that are not negotiable. If they can be adopted on an international level and supported through open, shared technology that’s interoperable between banks and countries, that could really create a new international environment, with trade truly becoming something different to what we know today. We should have ambitions to deliver this in less than 10 years from now.

GTR: How can embedded trade finance support clients in today’s landscape? How do you think it will develop in the coming years?

Ortino: Embedded finance could be transformational. But something to highlight is that we are talking about changing processes that have been ingrained for hundreds of years across a global industry, the size and scale of which is almost unfathomable. This idea of reengineering processes creates a degree of hesitance and uncertainty in many participants because of the sheer impact it could have, and the costs associated with it.

Azmi: Adoption by large anchors or principles is key, as they will have the ability to impact downstream ecosystems. Non-proprietary and low-technology platforms will enable faster, straight-through smaller ticket-size financing. As critical mass is achieved, this will enable a broader investor base, in addition to traditional lenders.

Ortino: Embedded finance also has huge potential to address the trade finance gap. Developing an offering of broader, more inclusive financial services for all – including SMEs – that’s richer and easier to use, will help to democratise trade finance and close this gap. So there are huge benefits that should be visible not only to banks in terms of business opportunities, but also to regulators, politicians and the industry overall.

GTR: Trade asset distribution is a valuable tool for balance sheet optimisation and enabling trade finance support to be accessed by those who need it. How are you leveraging these capabilities?

Ortino: Historically, asset distribution has been used mainly for risk mitigation. Now, it has almost become a necessity. Models and capital requirements for banks are changing, so being active in the market and redirecting your origination efforts is essential as a means of delivering the right risk-adjusted profitability and for banks to stay in business.

Ballesteros: Trade asset distribution is absolutely a core pillar of our strategy for two key reasons. Firstly, being able to distribute large letters of credit, SCF or receivables programmes, allows us to offer a single point of contact to our customers, leading to a better customer experience and improved processes. Secondly, the ability to rotate our balance sheet enables us to keep growing our offering and meet trade finance demand in new markets or client segments. We have developed trade distribution tools across all asset classes and kinds of investors – from banks and institutional investors to insurers and multinational agencies – to meet these targets.

Azmi: It’s definitely a very powerful area, particularly for banks whose footprints are restricted but whose appetite is quite broad. It provides the opportunity to pick up exposure without having to invest in origination resources. In Asean, credit insurance is gaining momentum. The way it’s treated from a local regulatory perspective has improved, so we’re starting to see a lot more appetite on the cross-border side, enabling greater balance sheet optimisation. Another trend is that large multilateral development banks are increasingly moving into corporate supply chain risk mitigation structures.

Kim: To meet the higher levels of trade finance needed in the current environment by both our FI and corporate clients, we are expanding our robust distribution channels by offering these short-term, self-liquidating trade finance assets to counterparties in the secondary market. This means we can now accommodate larger transactions, rotate portfolios to create more credit availability for clients, effectively manage country, sector and obligor limits, as well as reduce capital costs. To maximise the effectiveness of this risk-sharing model, we are also looking into alternative channels and platforms to supplement our operating model in the future.

Azmi: Sustainability-linked finance and Islamic finance are areas with growth potential, and are particularly interesting. Islamic trade finance products in Asean markets like Malaysia are advanced, and the appetite is there. So if you can structure Islamic deals in that space, you will potentially have a larger investor appetite.

GTR: How do you view today’s risk environment? What are the main challenges for banks and businesses?

Ortino: A lot of challenges have been brought about by increased compliance requirements for banks. An unintended consequence of this can be overcompliance, including de-risking, which can result in access to basic financial services being denied to a lot of companies, especially in emerging markets. We are increasingly seeing banks in regions such as the Caribbean, discussing being almost cut off from the correspondent banking network. It is important for a balance to be achieved between the need for robust compliance requirements and the need for FIs to remain inclusive and accessible to the widest possible number of businesses. This should continue to be raised by banks during strategic dialogue with regulators and central banks.

Marrone: Some 200,000 correspondent banking relationships have disappeared over the past decade. The adoption of new anti-money laundering (AML) regulations involving sanctions has played a significant role in recent de-risking. The tightening of international guidelines and the imposition of high fines by regulators to banks for non-compliance has resulted in a heightened perception of the AML risk affecting trade finance. Possible ways to address these challenges include the establishment of a central know your customer (KYC) registry that can be used globally, guidance on interpreting regulations and training on basic AML and KYC rules.

Azmi: The level of compliance processes banks need to carry out has risen dramatically. The good news is that technology that we can leverage is out there, and I don’t think the cost is prohibitive. Ultimately, the buck stops with banks when it comes to compliance, so there will always be a need to retain a degree of manual checking. But by applying AI, for example, to the ’first-level filters’, and using it for random sampling and pattern identification, it can make compliance processes significantly easier and more efficient, and help to reduce false positives.

Ortino: A lot of technology adoption is taking place around the checking of documents. I’d emphasise the importance of involving experienced compliance professionals in discussions around adoption, so the right tools can be implemented in the right way. This is a challenge because we don’t have many experts in this business at every level, and there’s a clear demand for people with these capabilities.

Kim: Compliance checks are definitely one area where automation can be applied. But now we’re going a little beyond that, exploring how we can execute and process the actual deals in a more automated fashion. In doing so, we can deliver improved standardisation and efficiency to meet clients’ evolving needs and enhance the client experience.

GTR: What is the role of trade finance in facilitating clients’ ESG requirements and strategies?

Azmi: The effort required to educate the whole industry is massive, and it will take time. That’s why I think we need to start looking at public-private partnerships (PPPs). Having a PPP programme could in itself be linked to ESG, and financial inclusion and diversity are areas where this could easily be applied. It’s a win-win.

Azmi: When it comes to ESG, trade finance has been primarily focused on infrastructure projects. Markets need to evolve to create a greater pool of ESG-based trade finance and working capital solutions. Additionally, rather than focusing on ‘binary’ definitions or ‘absolutes’ with respect to whether something is green or not, market solutions and incentives should be structured to reward businesses based on their ESG progress and journey. To achieve this, there needs to be market scoring benchmarks, which initially may not be completely aligned with global standards.

Ortino: Another point to consider is the extent to which ESG could further exclude smaller companies from the market. SMEs simply don’t have the means to implement the reporting structure, due diligence and all the requirements coming into force. Will banks therefore be forced to further deny access to finance to these businesses – on top of the overcompliance-related de-risking we’ve already discussed – on the basis they can’t report their ESG activity?

GTR: What does the wider global trade industry need to do to ensure ESG efforts can most effectively be supported?

Ortino: It’s very challenging to create clear standards and a framework for trade, simply because it’s so huge, diverse and granular. At this stage, it’s potentially more important for banks to adopt an advisory role to support clients’ strategies, than simply selling a green product. Being open to cooperating with other stakeholders and providers is also vital in order to be able to deliver the solutions, the value proposition, to meet clients’ requirements.

Azmi: Rollout and alignment of taxonomy will take time. There needs to be an interim roadmap around how smaller businesses can embark on the journey. Widescale market education is key.

Ortino: When it comes down to it, at the heart of everything we’ve discussed is digitalisation. Through digitalisation comes the ability to work with data, segregate assets, address compliance issues, incentivise sustainability efforts. So, rather than developing an abstract framework for all the different elements, the priority should be to try to find a way to digitalise the entire process, resulting in mass benefits such as ESG progression, lower costs, efficiencies and more access to finance. It’s all interwoven. Obviously, developing such an interoperable, open infrastructure where everyone can operate requires coordinated, international legal reform and cooperation by many stakeholders. It is of course ambitious, but it’s our responsibility to build this capacity for the future of our business.

The post Adapting to turbulence: The evolution of global trade finance appeared first on Global Trade Review (GTR).

As a veteran in the trade insurance market, there is a constant need for Coface to adapt and evolve with the changing business environment. It is essential to stay ahead of the evolution and continually fine-tune Coface’s response to these changes. The company has built a business intelligence unit, bringing together the data and expertise accumulated from its underwriting work, and is now able to present that to users through URBA, a platform that provides trade insight, portfolio-level risk scoring and real-time monitoring. 

Ian Chow, Coface’s regional product manager of business information for Asia Pacific, outlines how default risk assessment is changing in the new environment, and how URBA can help companies make more informed decisions. 

GTR: How are changing market conditions affecting the way companies manage supply chains? 

Chow: To set the scene, the business operating environment today has shifted significantly from where we were at the end of 2019, and we see this on a few fronts. 

On cash flow, some businesses have traditionally depended on supplier financing of sorts to manage working capital, toggling the gap between payment received from clients and payment made to suppliers to optimise cash flow. This has become harder in recent years, as companies are now more focused on accounts receivable management and collection, putting further strain on companies’ cash flow as business and demand slows.  

In terms of financing, the higher rates have also made it more expensive to finance working capital needs, stretching the funds needed to run day-to-day operations for some companies.  

Operationally, heightened geopolitical concerns have also affected supply chain consideration and selection. This, together with high logistics costs, has meant that the practice of nearshoring and friendshoring is gaining prominence, in the bid to reduce supply chain disruption. 

Unfortunately, these strategies are not always the most cost-effective option, nor the most operationally efficient. 

All these can have an impact on the sustainability of a company, affecting its cash flow, competitiveness and business viability. 

GTR: Historically, what kind of data or information has the market tended to use to assess a company’s default risk? Are there limitations to that approach?  

Chow: The changing environment means that when a company is assessing default risk, it is no longer enough to make an assessment based on that company’s financial performance, ownership and operation.  

This is quite different from the conventional approach in evaluating creditworthiness, because now, you not only have to understand the entity-level performance, but will also need to place greater emphasis on all these external factors and the environment in which the company is operating. 

That could include the countries in which that company is active, the sectors where it has exposures and more importantly, its trade network: who it is trading with and whether it is part of a larger group. These are all factors you will to take into consideration before making that final trading decision. 

From a trade insurance perspective, you need to understand everything there is to know, from political risk to environmental risk, as understanding just the entity-level risk is no longer sufficient. 

Also, while companies might previously have been able to make these decisions based on their own internal networks and information, this is limited to whether the dealings are with companies that you are already familiar with, or if you are in a space where there is extensive domain knowledge and built-up expertise. 

There are limitations there in terms of scope. For example, you might have significant knowledge in North Asia, but because of the current market situation, you need to explore new regions and find new counterparties.  

Our response to that has been to bring the strength of Coface’s underwriting to a new space; tools that historically were used by our underwriters are being brought to the Asia Pacific market. 

GTR: Why has Coface developed URBA, and more broadly, why is Coface expanding its trade credit insurance offering to a business information offering? 

Chow: If you look at how we started as a company, we predominantly provide trade insurance, which means we protect against default. We have come to realise that as we carry out these assessments and continually monitor these companies, we are accumulating data and expertise that we can use to cater to our customers in different ways. 

Imagine if traditionally, you’ve been buying insurance from Coface for the last 30 or 40 years. You probably have a sense that this is a good way of assessing businesses, and might start talking to us about that. Where customers used to buy insurance protection from us, they’re now also asking us for help with assessment. This is a fairly recent trend, and a lot of that is driven by those changing market conditions we discussed. 

At the same time, the whole world is moving towards dashboard-style apps, for efficiency. Our new URBA platform gives our customers that dashboard view, so you have a holistic view of a company at the portfolio level, taking into account all those environmental and contextual points and evaluating risk based on a wide range of factors. 

GTR: What kinds of information does URBA bring together, how is that presented to users and how does it fit into Coface’s trade credit insurance offering? What is different about URBA compared to other business information products in the market? 

Chow: One feature of Coface’s assessment is an incorporation insurance indicator. That takes in who a company is trading with, what exposure they have, and most importantly, the instances of actual invoice default. 

Coface also invests heavily in linking companies together to understand the total portfolio-level risk exposure, and we undertake our insurance decisions based on these trade insights. 

The result of all we do is where URBA stands out: our ability to show the likelihood of invoice default over a 12-to-18-month period and understand the company not only at a point in time but how it has evolved over time, allowing you to make informed trading decisions on that company. 

Another feature of URBA is real-time, 24-hour monitoring. With trade insurance, you need to understand whether there is any change in the operating environment, or within the trade network, that could have a material impact on the company. 

For instance, if we see financial stress in any part of the company’s trade network, we will immediately re-evaluate our exposure to this company and alert stakeholders of these changes. 

All in all, URBA is a dashboard that allows our customers to understand not only the company-level performance but also the network in which it is operating. Best of all, it has the ability to keep our clients informed of any material changes to the credit quality of their counterparts, allowing them the ease of mind to focus on growing their business. 

It is a modern tool designed for the fast-evolving business landscape in a globally connected world.  

GTR: What is different about URBA compared to other business information products in the market? 

Chow: A quick example that springs to mind would be the exposure on a Japanese trading company for seafood. 

Where most information providers would have tapped on and made assessments based on company information, last known financials and operational track records for its evaluation, it may lack the ability to provide for the shift in the operating environment arising from the decision to release the treated radioactive waters off the coast of Fukushima into the Pacific on August 24, 2023.                                                                                                                                         

The UBRA platform, backed by the Coface underwriting expertise and its vast analytical assets, allows UBRA clients to be notified immediately of any change in the credit quality of their counterparts arising from the exposure of its trade network. 

The information we are showing in URBA is the same that we use to make decisions on the €650bn in exposure that Coface as a trade credit insurer has. 

As with the highlighted case, these changes can include countries that Japanese companies are exporting seafood to, as well as the regulatory reaction in destination markets, changes in trade volume in Japan’s seafood export market, observance of actual invoice defaults and consideration of trade interconnectivity, both domestically and globally, for the said company and its related industry. 

In essence, with Coface, each assessment is differentiated not in what is considered for assessment, but the depth and width of what is assessed. 

The post Industry Perspectives: Default risk in the new environment appeared first on Global Trade Review (GTR).

As part of the industry’s digital transformation, digital trade will drive unprecedented levels of operational efficiencies from reduced manual data entry, data-led reporting, cash flow management and fraud mitigation.

According to the International Chamber of Commerce (ICC) and the Boston Consulting Group, trade digitisation could boost trade revenues by up to 20%, cut processing times by 60%, and save global trade banks up to US$6bn annually.

Connecting digital islands

As part of Swift’s vision to deliver instant and frictionless cross-border transactions, we have been exploring how we can ensure interoperability between emerging platforms that are at risk of becoming unconnected ‘digital islands’. This includes exploring how we can interlink central bank digital currencies (CBDCs) as they are rolled out across the world, as well as conducting experiments to test how we can enable interoperability between multiple tokenised asset platforms.

Likewise, innovations are underway in trade finance. In a new set of interoperability trials, we’re exploring ways to drive the adoption of digital trade solutions worldwide.

eBL: The future of trade documentation

Traditionally paper-based, an eBL is a document used in transporting goods by sea, air or land. It contains the same information as the paper document, including details about the shipper, the consignee, the goods being transported and the terms and conditions of the shipment.

As part of the drive to digitise trade, bills of lading are increasingly being created and stored electronically on digital platforms. These platforms allow key participants in international trade transactions – shippers, traders, ship agents, banks, inspectors, customs agents, chambers, et. – to connect and securely share eBL in real time. A new frontier in transforming international trade, the scaled use of eBL could unlock an additional US$40bn in global trade, according to McKinsey.

Ocean carriers issue around 45 to 50 million bills of lading per year. While bulk shipping issues significantly fewer bills, the value of the goods covered by these bills is substantially higher. We see the industry working together to digitise trade, from the Digital Container Shipping Association (DSCA) committing to issuing 100% of bills of lading digitally for container shipping, to Baltic and International Maritime Council (Bimco) targeting to reach 25% usage across the entire bulk sector.

The challenge

Today, for a transaction to flow efficiently, all stakeholders need to be onboarded to the same platform. There are currently 10 eBL platforms authorised by the International Group of Protection & Indemnity Clubs, which are not connected and integrated. This results in all parties needing to sign up to multiple providers with different processes and rulebooks – which could be time-consuming, costly and inefficient. Some revert to paper-based documentation because of the effort in trying to get everybody to collaborate.

Developing an interoperability model

Swift has thus been working with members of the Future International Trade (FIT) Alliance (DCSA, International Federation of Freight Forwarders Association or FIATA, Bimco and the ICC) alongside eBL platform providers to develop an interoperable model.

With this digital trade solution, we could receive data from one trade platform via Application Programming Interface (API) and pass it to a different platform. This allows companies to trade with each other and exchange eBLs, regardless of eBL platforms. This means that customers need only sign up for one provider, speeding up document exchange while reducing costs, automating processes and improving security. This drives greater supply chain interoperability and transparency in international trade.

Developing a proof of concept

In recent months, we’ve been developing a proof of concept (POC) for this solution, using an Electronic Transport Document API that leverages DCSA’s industry specifications. In collaboration with two authorised eBL providers, edoxOnline and CargoX, a series of interoperability trials were conducted in early 2023 to understand the solution’s potential in enabling timely and secure interactions between eBL platforms in a typical bill of lading lifecycle – creation, transfer and surrender – with Swift as a connecting network.

Supporting frictionless trade

The proposed interoperability solution will accelerate the adoption of frictionless trade transactions and reduce the industry’s reliance on paper, lower costs and curtail the risk of demurrage. All these contribute to making supply chain processes more transparent, efficient and reliable while improving the accuracy and traceability of data.

Though global adoption will take time, eBL is one of the many viable solutions to help bridge the interoperability challenge in digital trade. Providing new levels of traceability and accuracy of trade data promises more efficient and reliable supply chain processes that deliver a better customer experience. Interacting through a connecting partner that serves as an identity proxy is just as crucial in achieving interoperability to accelerate frictionless global trade.

Next steps

The results of this POC will be shared with the community later in 2023. A second phase of the project is also planned to further validate the solution with additional eBL platform providers as well as banks. This extended work will include an industry consultation on a supporting legal interoperability framework to support and protect participants.

The post Accelerating trade digitisation by connecting digital islands appeared first on Global Trade Review (GTR).

Rescom Group specialises in minerals and metals, and is active across mining, processing, trading and shipping. In this Industry Perspective, Hamsika Gopalan, general manager for corporate and trade finance, outlines the various pressures continuing to shape the commodities trading space, and how SMEs like Rescom can thrive in a challenging environment. 

GTR: How would you characterise the commodities market at the moment? How is turbulence within the market affecting trade flows, and what does that look like from an SME perspective? 

Gopalan: As the first half of 2023 draws to a close, the economic slowdown continues to put pressure on commodities markets. Globally, inflation has started to ease slightly, but price pressure remains at historically high levels. A combination of high prices and rising borrowing costs risks hampering every business, and certainly makes it more difficult for the SME. Restrained consumer spending and sluggish manufacturing activity, underpinned by weak capital investment, are expected to further reduce demand for energy, metal and agri commodities. 

We live in an interdependent world and no region is self-sufficient. Trade connects the global flow of goods, services, capital, people, data and ideas. However, following the pandemic, Russia’s invasion of Ukraine and years of rising tensions between the US and China, there were speculations we could see a period of de-globalisation, and the rise of ‘friend-shoring’ and ‘near-shoring’.  

Barring a few disruptions in agri commodities, trade flows have actually proved to be remarkably resilient during the most recent periods of turbulence. Ultimately, the challenge is to harness the benefits of being interconnected while managing the risks and downsides of dependency, and this fundamental concept holds true for SMEs as well. 

GTR: In an environment of higher interest rates and fluctuating commodity prices, how has the financing situation changed? And again, is this different for SMEs compared to larger businesses? 

Gopalan: The global trade finance gap continues to widen, year after year. It was US$1.5tn in 2018 and is now expected to have crossed the US$2tn mark. And while the effects of the pandemic have receded, newer challenges like interest rates and inflation are emerging. Also, growing pressure around ESG is forcing businesses to contend with climate-friendly practices. Amid these conditions, access to working capital has become difficult, particularly for SMEs. 

Many traditional financiers are either capping their capabilities or scaling back, and in the case of SMEs, we see banks looking to add greater collateral or security for lending, which increases fixed costs. Relatively newer sources of financing, such as hedge funds and asset managers, have stepped in to take advantage of this gap and provide an alternative, but this comes with its own challenges for SMEs, including high rates. 

Additionally, events such as the fraud alleged by Trafigura in the nickel market add to the perception that SME financing is risky. This situation certainly needs to improve as the landscape for SMEs is quite different to that of larger commodities businesses. 

GTR: How can businesses respond and adapt to changing market conditions, whether that means shifts in commodity trade flows, wider economic challenges or pressures on the financing side? 

Gopalan: Businesses should look at the potential impact of the energy transition, especially for those underlying metals and other goods that use energy as an input, which will likely face supply imbalances in the time to come.  

In Rescom’s case, our group has a strategic investment in an Indian alumina refinery that produces 1.5 million metric tonnes per annum of alumina. Though its energy needs are currently met by coal, we have commenced the process of gradually transitioning to alternative and green energy sources. Specifically, we have initiated discussions with Greenko for the supply of renewable energy to the refinery. 

We also continue to review supply-related concentration risks, with trends around regionalisation and geopolitical tensions meaning businesses must remain aware of the geographical distribution of commodity sources. 

And in terms of logistics, we have entered into long-term agreements on freight costs to reduce exposure to fluctuations in prices. Having a flexible approach is crucial – that way you can adapt to rerouting flows, leverage assets in storage and blend commodities to meet customer specifications – and the agility we have as an SME can actually be an advantage in this case. 

GTR: Specifically within trade finance, do SMEs today have access to both buy-side and sell-side financing products, such as supply chain and receivables financing? Where does credit insurance play a role? 

Gopalan: As mentioned, there is a significant gap for SMEs in terms of availability of liquidity, particularly dedicated annual revolving funded limits. Though a lot of alternative trade funds operate in this space and offer fast turnaround times, they are not always sustainable from a long-term cost perspective. 

Taking on credit insurance on buyers continues to play a major role for traders that sell to end users, but this is a space where one needs to tread carefully, given the noise around claims and potentially fraudulent documentation. 

GTR: What is your outlook for the commodities market over the next year, both in terms of economic factors like pricing and demand, and external pressures such as ESG? 

Gopalan: All the commodities we deal with at Rescom are infrastructure-based, so we do not foresee a significant slump in demand in the near term. In fact, the past couple of years have afforded us a great kick-start into the alumina industry. With our group’s 50 years of experience in mining, processing and trading, our CEO, Madhu Koneru, has founded KCap Holdings as an investment arm to leverage our expertise and focus on industry opportunities related to Rescom’s core commodities.  

In addition to developing our coal and barite businesses, we are actively evaluating asset-based opportunities across the value chain in the aluminium vertical, to take advantage of the growing demand for aluminium and help in our move towards stronger compliance with global ESG standards.  

The post Industry Perspectives: Financing SMEs in a turbulent commodities market appeared first on Global Trade Review (GTR).

Stakeholders across the trade ecosystem have been unanimous in their support of this enabling piece of legislation. In the months since the bill was first drafted, several industry players have appeared before lawmakers to explain the benefits of giving electronic documents the same legal validity as their paper counterparts in trade – as well as providing reassurance that solutions already exist to do this in a trusted and secure way.

Lars Hansén, senior advisor at Enigio, a Swedish technology provider, was one of these expert witnesses. During a hearing at the House of Lords, he described how the company’s solution trace:original creates a freely transferrable and possessable digital asset that is functionally equivalent to a paper document, in line with the specifications laid out in UNCITRAL’s Model Law on Electronic Transferable Records.

In this Industry Perspective, he discusses his experience, and underscores the importance of co-operation to ensure everyone can capitalise on the benefits of this ground-breaking legal reform.

Q: What has been your experience in getting lawmakers to understand the concept of electronic trade documents such as those created using Enigio’s technology, and how have you addressed their concerns?

Hansén: Enigio has been working on this for quite some time, and it has been a bit of a challenge as this is new technology. There are multiple issues when you talk to lawmakers and lawyers. The first is that lawyers are hesitant about new technologies, because they have to assess the expected legal outcome. This is no surprise, given that they mostly deal with situations where things go wrong, but it requires technical and legal experience with the processes involved.

The lawyers have been quite crisp about the challenges, as well as raising some interesting questions that we had to address such as change of form from electronic to paper and vice versa. When we talk about documents like bills of lading or bills of exchange, we are referring to documents that have been in use for centuries and always had a wet signature on them. So, when we proposed to make them digital, concerns were raised about the possibility of creating fake documents. The fact is that paper documents and signatures are easier to forge compared to their electronic equivalents. This is where our trace:original technology comes in to provide a technical solution to this legal conundrum.

When you create an electronic document, it is not as straightforward as creating a paper document. When you write on paper, you are signing the original document, and the singularity is there by default. But when you sign an electronic document, you need to prove that it is your signature and that it is tied to the content of the document, and the document must be versioned. Only then do you have a singularity required by the law.

Q: How comfortable are businesses with the concept of electronic trade documents?

Hansén: One of the significant benefits of electronic trade documents is the ability to streamline payment processes. For instance, a bill of exchange can be created and discounted within days, rather than weeks. This creates the incentive for change. We have found that large corporates are comfortable with our solution and are enthusiastic about the benefits. However, educating SMEs on electronic trade documents and how easy it is to work with them once they are created is a crucial challenge. Here is where industry-wide collaboration comes in: having the support of the banks as well as trade and industry organisations, for example, is a significant trust-building factor.

Q: What is your outlook on how the legal reform will impact the adoption of electronic trade documents in the UK, and what do you see as the key factors for success?

Hansén: We believe the legal reform will democratise digital trade and make it accessible to all, particularly SMEs. Sustainability is also a significant benefit, as the need to ship physical documents and store them for accounting reasons will no longer be necessary.

Our belief is that the transformation will be an evolution, rather than a revolution. It will take time for companies to shift from paper to digital, and some individuals may be hesitant to trust machines over paper. Therefore, two core factors are crucial for success. Firstly, the initial investment for companies transitioning to paperless should be reasonable, and the technology must be reasonably priced. Secondly, the implementation of the technology needs to be seamless, with paper and digital documents living side by side without requiring a change in processes. It’s also essential to be able to change media or format, from digital to paper or vice-versa.

For greater comfort, we would like to see lawyers and government promote the use of electronic trade documents. Here, bodies such as the International Chamber of Commerce could play a role. The value of these documents is significant, and it’s vital that they are watertight and meet all the requirements set out by the law. However, a PDF is not equivalent to paper, and adding features to it does not necessarily make it equivalent either. Working with a trusted solution provider is crucial.

Q: How important is collaboration and co-operation to the success of trade digitisation?

Hansén: Taking advantage of the Electronic Trade Documents Bill in the UK could bring substantial benefits to the country. For digital trade to become a reality, it’s important to start simple and not overcomplicate things, building on foundational building blocks that are already in use today. The banking community has a significant responsibility to adopt electronic trade documents, as they have the infrastructure, customers and web portals to make them available to everyone. Furthermore, the government can promote the use of electronic trade documents by consistently including digital trade considerations when negotiating its free trade agreements. An attitude change is necessary to embrace new technology and solutions, and everyone needs to be on board, from businesses to banks, industry bodies and the authorities.

The post Industry Perspectives: Demystifying trade digitisation to drive legal reform appeared first on Global Trade Review (GTR).

Q: The world’s physical and financial supply chains and trading relationships have been rocked by disruptive events, which have affected companies’ trade priorities and strategies. How have you seen the situation evolve post-pandemic?

Cox: Until Covid struck, everyone just assumed trade ‘happened’. The industry has been in the headlines pretty consistently since then, whether it’s geopolitical challenges or logistical disruptions to supply chains. The second-order effect of this, which has yet to fully play out, is the notion of who is – and isn’t – a reliable party to do trade with, and what that means for the stability of supply chains.

The other important piece relates to financial supply chains and the fact that we’ve recently seen successive interest rate rises in the face of high inflation. The challenges of trade and supply chains have shifted from maintaining physical resilience during the pandemic and other disruptive events to ensuring financial resilience while dealing with higher credit spreads.

As a result, from a trade finance counterpart perspective, we’ve had a lot more opportunities to help our clients, who have truly needed our support. The situation has certainly reinforced the importance of banks and our access to capital during periods of global market stress, which has been vital to supporting clients with their working capital cash flow needs.

Q: As global head of trade at an industry-leading bank, what do you think the future of trade finance, and trade financiers, looks like?

Cox: My background is in markets and securities services, where there’s a lot of information sharing in terms of repositories and transaction reporting. Trade as an industry feels to me like it’s 15 years behind that – but there’s a very good reason why that is the case. Securities markets are dominated by the world’s large trading centres, such as New York and London, whereas trade happens everywhere. Citi Treasury and Trade Solutions (TTS) alone is in 95 countries globally. I think as an industry we still haven’t got our heads around how best to serve such a complex infrastructure. Banks replicate a lot of processes, and we don’t share data to which we all have very similar access. There’s a fair amount of wasted investment where banks are duplicating activity because the current view is ‘if I want to digitise, I’ll have my own fintech do it’. My personal view is that trade finance banks can increase their impact by learning from other sectors that are embracing external technologies and being more open-minded about things like data sharing. We’re seeing some progress here.

Similarly, things are changing in terms of banking partnerships. The traditional view of a trade finance bank was, ‘you finance your corporate relationship and I’ll finance mine’. It was very much a bilateral exercise. This is also shifting. Citi today is a much more multi-bank platform than people probably appreciate. We have north of 100 different banking partners to whom we distribute supply chain finance and other assets, volumes of which have grown more than 40% over the last 12 months.

For Citi, the most important way of looking at the future of trade finance is in terms of the client experience. How does the client want to access trade finance?

For us, the focus is on taking the friction out of the process of accessing trade finance. All the necessary steps that companies must take, from KYC to AML and suitability checks – before they even get close to doing the transaction – are very specific to individual banks. We’re aware of that and are concentrating on how we can put our solutions in the hands of our clients as speedily and efficiently as possible. One of the ways we’re doing this is with our eLoans platform, which transforms the working capital loan process into a consumer-like online experience. We’ve seen some strong adoption globally and expect that trend to accelerate.

Likewise, our supplier finance programme is already significantly digitised. Our goal is to extend that application of technology in a way that gets finance to clients as frictionlessly and effectively as possible.

Q: What role does Citi play in shaping the future of trade finance? What are the bank’s key focus points in the trade space?

Cox: Given our significant – and very well-balanced – geographic footprint across all regions, we think we’re a great partner for multinational corporates. We’ve got one of the largest proprietary transaction banking networks.

We’re very focused on increasing the cross-border connectivity between the regions in which we have a considerable presence: North America, Latin America, EMEA and Asia Pacific. We’re very good at supporting clients that want to pivot their supply chains from one location to another or develop their business in a new location. When it came to meeting food security needs last year, for example, countries that had relied on Russian and Ukrainian food imports had to shift to acquiring goods from other regions, such as Latin America, which is something we were able to support.

Also worth mentioning is that Global Trade and Working Capital sits within Citi’s TTS division, which includes liquidity management services and payments capabilities, making us a powerful partner for companies wanting the full suite of services across treasury management activities on a truly global basis.

Nevertheless, we admit that we’re a fraction of the size of some of our peers in the commercial banking segment by virtue of earlier versions of our corporate strategy. But that’s something that we’re committed to fixing and is a real growth opportunity for us. Last year, we began extending our trade product suite to Citi’s Commercial Bank (CCB), building out CCB trade in multiple target markets globally, including to SMEs.

Q: Citi has been recognised as being at the forefront of digitalisation efforts in the trade finance industry. What’s the next step in the bank’s journey?

Cox: We continue to evolve our digital efforts. We’re exploring beyond established technologies like optical character recognition (OCR) and application programming interfaces (APIs), into emerging technologies like artificial intelligence, machine learning and smart contracts, to power new solutions and improve our client experience. We also roughly doubled our technology investment over the last couple of years and plan to increase our active participation as an investor in emerging technologies that we think will deliver industry-wide benefits.

We want to boost our partnerships around the application of technology that will help us achieve our goal of improving the client experience in terms of frictionless access to capital. We acknowledge that collaborating on solutions can be quicker than trying to build them ourselves. We’re probably more interested in enterprise-ready big-tech solutions than we are in the more complex technologies that have high barriers to adoption. We want to keep it simple and scalable. We’re wary of over-fragmentation in the fintech space and ‘golden cages’ vs data.

And, to effectively implement these investments and focus on the evolution of the business, we have created a dedicated team to drive it.

Q: Incorporating environmental, social and governance (ESG) solutions into trade and supply chain finance programmes has become a major target for many global banks. What are some of Citi’s priorities in terms of supporting environmental and social goals in trade?

Cox: The bank announced a few years ago that it is committing US$1tn to sustainable finance by 2030. This includes an extended commitment of US$500bn to environmental finance as well as a pledge of US$500bn in support of the Sustainable Development Goals outside of environmental finance, comprising investments into education, affordable housing and gender equality, among other areas. The bank is also committed to its own transition. We’ve just hired a new head of ESG for TTS to support both trade and the wider organisation.

We are doing everything in our power to help clients with their transition. Where we can, we’re building sustainability-linked objectives into our products. We already have that in supply chain finance and loans and will also be rolling it out in other areas. Likewise, we’re actively engaged in supporting new industries linked to clean energy, such as wind farms and electric vehicle battery plants.

As an industry, we have a tremendous opportunity to help finance the leading edge of what we need as a society from a sustainability perspective.

Trade is fundamental to economic development, even at a global corporate level, given the fact that corporates’ supply chains invariably filter down to the local micro and SME level, where they typically serve some social purpose.

Our partnership with Stenn is all about getting further down into deep-tier financing. We’ve also teamed up with a range of multilateral agencies, including the International Finance Corporation and the European Bank for Reconstruction and Development, to risk-share on driving more financing into the SME sector.

In a world where everyone is dealing with macro headwinds and great uncertainty, trade finance has a critical role to play. Being able to reach the grassroots and drive some form of social benefit really is the best part of what we do.

The post Citi’s Chris Cox: Shaping the future of trade appeared first on Global Trade Review (GTR).

Since its launch in 2020, Contour has signed on over 130 members. Connecting corporates to financial institutions and trading partners on one decentralised network, the bank-owned blockchain company’s first goal has been to digitise the letter of credit process.

In this Industry Perspective, Joshua Kroeker, chief product officer at Contour, explains how trade finance digitisation is evolving and what the industry should be concentrating on in order to achieve sustainable growth.

GTR: Trade finance digitisation is a goal for much of the industry, but is this the end game?

Kroeker: Several years ago, everyone was excited about new technology such as blockchain, but perhaps we didn’t think enough about why it was exciting or the bigger picture about what we wanted to achieve. Now we’re starting to ask why we’re using technology – what is our end goal? Are we just taking existing paper-based trades and putting them onto a digital system? To what end?

To help answer this question, we broke it down into three categories of possible goals. The first is cost reduction, which is the basic business case for digitisation as technology has been proven to remove time and friction from transactions, as well as manual processes. The second category is to improve compliance and risk procedures. Technology can enable greater transparency and visibility to achieve compliance with a new regulation or an ESG standard for example, or for reducing fraud risk. We’re seeing a lot of activity happen in that space, especially as ESG mandates become clearer.

The third category is growth in the trade finance industry. This is about changing who is involved in the finance of trade, reducing barriers to entry, and becoming more inclusive. Growth should not be concentrated amongst only the very biggest companies and economies, but among smaller businesses in emerging markets as well.

Any one solution can of course help drive partial improvements across all three goals, but it is helpful to remain focused, and to have a single primary goal.

GTR: How is Contour thinking about digitisation in 2023?

Kroeker: The goal that we want to focus on is growth in trade finance, and in particular, sustainable growth. We want to make sure the cost to serve of trade finance is low enough that banks can support every corporate that qualifies – from the multinational companies to the small and medium-sized enterprises (SMEs). It is important to focus on supporting emerging markets and SMEs, because that’s where a lot of the growth is going to come from.

We know that if we can lower the cost to serve for letters of credit, and tailor our commercial approach to long-term network building, emerging markets and SMEs will benefit the most. The next step is creating a community of banks who want to grow their business in these areas.

A community of banks can also work together to make trade with emerging markets easier through risk distribution, an area we are starting to explore at Contour either directly or through partnerships. When one bank is not able to take the risk of an emerging market bank, another bank or non-bank financial institution might.

The letter of credit is an important product for us, as it provides confidence and risk mitigation where one of the corporates may not have a global reputation, is in a new relationship, or if the transaction involves country risk. This is why Contour is so focused on making this product simpler, more intuitive, and more widely available. We will eventually expand to other areas of trade finance such as guarantees, standby letters of credit, and more – but our focus for now is on improving the overall experience for the letter of credit.

GTR: How will these priorities help the industry focus on delivering sustainable growth? 

Kroeker: Everybody is looking for the silver bullet: the one solution that’s going to solve across all digitisation goals. But trade and trade finance are very complex, so what we need to do is look at the problem holistically and ask what combination of solutions and processes is needed to achieve sustainable growth, and how they can be integrated into existing systems and processes over time. If banks and corporates are not ready to join until everything’s perfect, we will constantly be stuck in this cycle where there are small digital platforms but none at a global level, which is what is needed. The truth of any trade finance solution is that it needs scale before it can start to deliver on these value propositions both individually and collectively.

GTR: There are now 20 banks on Contour’s trade finance network. What are the best practices for banks when they’re thinking about digitisation?

Kroeker: Banks should think about what their goals are, whether letters of credit are important to them, and if they’re looking to grow their business through enhancing their proposition. We can help them do that, and we are working with our banks now – and their existing trade finance software platforms – to understand how our solution can enhance their proposition at scale rather than just with a few corporate clients. It’s a mutual journey that we must go on together.

GTR: Once a bank is on board, what are the next steps to ensure they’re maximising the benefits of being on Contour’s network?

Kroeker: Once they’re a member of Contour, a bank will have to think about how they activate their membership with their corporate clients, otherwise it’s like joining a gym and never going – it’s not going to do anything for you. The first thing to do is think about how you’re going to offer this new digital proposition to corporate clients. One option we are exploring is for banks to onboard their customers directly to Contour without their clients needing to separately contract with Contour. This could be a real game changer for us as it makes the onboarding process much simpler. The second option is to use more traditional referrals, email invites and other more passive engagement solutions. Our preference is of course the former, as corporates are used to going directly to their bank for a letter of credit solution, and our offering can be embedded directly into existing channels which makes for a much simpler transition.

The second step we ask our banks to take is to think about how corporate clients will interact with a new solution like Contour. Will the bank integrate the offering into an existing corporate channel, or set it up as a completely standalone solution? We’re happy to support either of these options, but in order to set themselves up for success, we recommend that banks at least plan how a new solution can be integrated, whether through APIs or even a simple single-sign-on.

The third step is setting goals. Setting internal KPIs helps maintain focus within an organisation over a longer period, long past the celebration of the first transaction or joining announcement, which can deliver lasting improvements to their business.

GTR: Banks use a multitude of digital tools and solutions. How important is interoperability and how does Contour’s solution fit in?

Kroeker: Interoperability is imperative, but I think it has to be defined correctly. I would define it simply as data flow between multiple solutions in a seamless and efficient way. A lot of banks and corporates like to say that interoperability is the tech platform’s problem, but in my view, it’s actually the initial responsibility of the individual bank or corporate to drive interoperability. That is the first step.

For example, banks might want to join an electronic bill of lading platform, a trade finance network like Contour and another platform for reducing fraud risk. If they build integrations to all three of those systems and the data goes into their internal systems from the external system and vice versa then they have achieved the first level of interoperability – between internal and external systems. To this end, we are seeing more and more banks investing in ‘middle layers’ of technology that is helping them reduce costs and better connect their internal systems to external parties. This has enabled significant improvements in their ability to integrate and achieve the process improvements they seek, but it does take time and investment.

The next phase of interoperability can only work after step one, and this is between multiple external participants themselves. The way I see this data flow is a transaction could flow from one external platform to an internal platform, and then some of the data back out to another external platform. This is true next-level interoperability that the industry needs, and the key to achieving this is common data standards and identity standards, like the legal entity identifier. By working together as a tech community, we should do everything we can to adopt common standards in data, process and identity and Contour puts this as a top priority. As banks and corporates progress to integrate to external systems – step one – and these external systems are all using common processes, data standards and identities, we can then finally achieve the goal of seamless and efficient data flow across the trade ecosystem. We can only begin to imagine the benefits that this can provide, but this is where we want to go.

The post Industry Perspectives: Rethinking trade finance digitisation appeared first on Global Trade Review (GTR).