Collateral management is not something that usually sets the pulses racing: it is an arduous, time-consuming, but necessary, task and one that has traditionally been done manually. This got BNP Paribas' Specialised Trade Solutions team thinking: what does a simpler and less time-consuming collateral management process look like?
Onerous paper-based reconciliation processes have long posed a challenge to clients and banks. How might co-creation and fintech provide the answer?
The result of an exhaustive co-creation process involving clients as well as internal colleagues, MyCollat is a web-based interface drawing on the possibilities of Blockchain distributed ledger technology, designed to simplify collateral management and the sharing of information for commodity-finance transactions. During an innovation cycle launched in early 2016, the starting point was BNP Paribas' Blockchain Biz'Hackathon in January of that year, leading to the delivery of a successful prototype, which is now being improved and developed with a view to undergoing live testing.
Three specialists from Specialised Trade Solutions offer their insights into why collateral management should now set your pulses racing.
What is MyCollat and how did it come about?Jérome Hayoz: The idea of MyCollat was born during the BNP Paribas Blockchain Biz'Hackathon in January 2016. During the two-day sessions, Blockchain experts and developers, corporate clients and BNP Paribas employees devised and started designing applications to ease "pain points" in the cash, trade and working capital finance value chains, making use of the powerful features of Blockchain technology.
Our team focused on the commodities' trading value chain. The lifecycle of commodities' trading is complex: each transaction involves 10 or more stakeholders, who each monitor and track their position and risk throughout the transaction cycle.
Between a trader and the bank offering a trade finance solution, a major pain points relates to sharing of information on the collateral [i.e. the physical guarantee on the underlying goods which secures the financing]. It is a tedious and time-consuming process, involving paper-based manual reconciliation. In our team, roughly 45% of an account manager's time is spent on checking positions and price, by phone, fax and email. Some of our trader clients spend roughly the same amount of time performing the same tasks, which is quite simply an enormous total amount of time. Also, due to asymmetry of information, risks of disputes exist. Our objective was to make sharing of collateral valuation painless and less time-consuming. We believe that Blockchain technology can contribute to designing a more efficient process.
What is it about blockchain technology that facilitates the sharing of "true information" between different parties?Ronan Pierre: Imagine that you have a shared ledger in which you record each change in the value of your collateral. Your client has access to the same ledger, and everything you record in the ledger is automatically and almost immediately visible by the client, and vice-versa. This is the added value of Blockchain in this situation: there's no need for manual reconciliation, as reconciliation is performed by the system itself.
MyCollat thus connects the Bank and clients for collateral management. It can also connect other participants in the commodities' value chain via the same platform.
WILLIAM VINCK, MANAGING DIRECTOR OF PACORINI GLOBAL SERVICES:
"MyCollat is a promising initiative that will help to rationalize collateral management information flows. This integrated real-time system will enable us to reduce the workload and save time. This is a real benefit to all stakeholders. For us as warehousing specialists, this represents a further step towards improving efficiency vis-à-vis our clients."
NICOLAS TAMARI, SUCAFINA CEO:
"MyCollat is offering an innovative service for sharing and management of positions with our partners, in real time, thus bringing all the parties involved in a given transaction closer together. This tool, which is highly intuitive and easy to use, provides an effective and efficient response to the issues that our industry has to cope with."
How did you go about "co-creating" MyCollat with some of your clients?Chiheb Kourda: We started from the perspective that manual collateral management was a mutual pain point, shared equally by us and our clients. From this starting point, we immediately sought to integrate our clients' perspective and business expertise to develop a common understanding of the goals and process. This enables us to determine that the platform design should focus on ease of use; it should be intuitive and address the key business needs of both the bank and its clients.
We placed a specific emphasis on the user's experience at every stage: what content a user is viewing, what value content brings and how the primary requirements of the user are satisfied in the simplest manner.
Based on our clients' feedback, we rapidly repeated the process and communicated progress regularly across the team and with end users. It has been a continuous process of adjustment and amendment.
When the prototype was ready we presented it to additional clients, and received excellent feedback: they find the solution simple and easy to use, with useful information and features. Furthermore, they would like to add more functionality, more business rules and also connect the platform to their own IT systems.
Jérôme, as an account manager in the Specialised Trade Services team, designing new solutions is not your regular job. How do you manage to integrate design, co-creation and development of a new service into your day-to-day activities?Jérome Hayoz: When we started this project, we felt it was necessary to involve our clients from the outset, not only to understand and meet their needs, but also to confirm the usefulness and possible barriers to adopting a new communication/valuation tool. An Account Manager seemed to be the best placed to instigate a dialogue on an informal basis, and get regular client feedback: we typically have a close relationship with our clients as we are in contact with them every day. It is part of my job to provide solutions to support my clients' business development.
MyCollat is a huge improvement for all stakeholders, so it seemed natural for our team to free up resources to develop the project, and we received excellent support from both our direct managers and CIB top management. They offered regular feedback and concrete support to solve problems as they arose and secure the necessary budget during the project's development.
Finally, our way of working allows our small team to work with agility and autonomy. This was instrumental in enabling us to create MyCollat with our unique touch. Our very different backgrounds (Business and IT) and complementary skills offered a good environment to develop our project rapidly.