The Trade business is facing profound transformations and the trend is not bound to get slower. Marguerite Burghardt shares a vision of the impacts and promises of digitisation in the trade environment.
The banking industry is embracing digitisation, notably in Trade Services. More transparency, increased efficiency, and faster, more traceable transactions are just some of the benefits that market participants can derive from digitisation. The challenge is how to realise the potential that the digital transformation offers. To this end, Focus identifies three core factors to consider.
The digitisation of trade: three factors to consider
Seizing new opportunitiesThe emergence of Fin Techs ? agile companies using new technologies or methods to enhance the efficiency and effectiveness of financial services ? clearly has the capacity to transform the Trade Services landscape. There has been a vast rise in the number of service providers working in this space, and the level of investment has followed suit, growing exponentially in the past decade from USD1.8 billion in 2010 to USD19 billion in 2015.
From the perspective of established banks, the last few years has seen a focus on implementing digital platforms or portals to serve corporate clients. The emphasis has been on processing transactions faster; rather than relying on the established paper trail, attention has switched to ensuring clients need only to make the fewest clicks possible to enter data and can submit requests to their banks instantaneously. Additional functionality improvements include helping corporates have more control on their credit facilities and manage their payments with greater efficiency.
"Going paperless is one of the most important developments to the deeply entrenched Trade Services practices."One of the nascent technologies that could revolutionise Trade Services is Blockchain. Defined as a shared distributed ledger, it has the power to track, verify, settle and permanently render all transactions public. The innovative nature of this technology affects not only payments and contracts, but also identity verification and more. With Blockchain technology, it would be conceivable to trace and authenticate a transaction, which is impossible in the current environment and the way transactions are processed.
Rethinking trade offerings and legislationGoing paperless is one of the most important developments to the deeply entrenched Trade Services practices.
Thanks to digitisation, the Trade offer is now evolving with the introduction of new products; a good example being the Bank Payment Obligation (BPO), which is based on electronic matching of data. Banks are also working on the deployment of new solutions leveraging opportunities created by Fin Techs. For example, the smart Letter of Credit (i.e. replacing the traditional Letter of Credit with smart contracts on a shared secure platform) or the digital inventory management solutions, which enable corporates to have real time visibility of their supply chain.
"Digitisation has the capacity to transform how Trade Services are delivered by strengthening the links between the market participants."It is however difficult to know if or when these projects will be fully implemented. Their future success depends on digital deployment, legal acknowledgment, and adoption by the market. Currently, the necessary legislation has not been adapted to digital Trade solutions, therefore preventing imminent adoption. Digitisation is a change driver, with banks also having a central role to play thanks to their representative roles with such industry bodies as ICC or BAFT.
Leveraging on co-developmentDigitisation has the capacity to transform how Trade Services are delivered by strengthening the links between the market participants. Increasingly, the relevant players involved in Trade ? corporates, banks, SWIFT, the regulators, Fin Techs and so on ? are coming together at cross-industry events and forums to share experiences and ideas on how to overcome digital challenges. In June, the 'Fin Techs Trade Finance Briefing Day' in Geneva and the 'Blockchain Conference & Masterclass' held in London were both successful, and in so doing confirmed the importance of co-development. The clear message from corporate clients was that they rely strongly on banks to drive the digital transformation in Trade and to offer adequate and efficient solutions. Building on this, in May 2016, the Boston Consulting Group and BNP Paribas published the Corporate Treasury Insights survey, which reflected Treasurers and CFO's expectations. One major outcome was "Corporate treasurers increasingly expect a comprehensive, streamlined digital customer experience from their transaction banking partners".
At BNP Paribas, we believe that innovation is critical and that it is essential for us to work closely with corporates so that we maintain our deep understanding of their expectations and needs for the future. By including corporate clients in our digital and Blockchain Trade initiatives, we are proactively involving them in co-designing the Trade solutions of tomorrow.
"Treasurers like the specialized value propositions and the often-cheaper price points that Fin Techs provide, but 90% of the respondents of the survey indicated that Fin Techs are not yet capable of meeting the full array of corporate treasury needs."
Source: Corporate Treasury Insights 2016 BCG & BNP Paribas