Donnerstag, 28. März 2019

Innovating for the client

Banks are investing huge amounts in new technology, but are they innovating enough in the eyes of their customers? At a recent roundtable hosted by HSBC, both corporate clients and internal trade experts discussed what digitalisation and blockchain mean for trade processes and how banks can better support their clients’ business objectives.

 

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New technologies and platforms will continue to open up markets and automate trade processes, but what does this mean for corporates? When it comes to trade and technology, businesses are looking for efficiency. Above all, they want solutions that are transparent, easier to use and which ultimately save them time and costs.

For Renault, for example, digitalisation is mainly about speed: it wants faster payments and trade flows, according to Trade Finance Manager Fayaz Kandjy. Due to the sheer volume of transport companies they work with, each of which typically has its own templates for letters of credit or bills of lading, there are often discrepancies when documents are presented. In many cases, this can lead to a delay in payments. "We believe that having documents digitalised with security will bring more speed to the trade flow as well as certainty of payment," Kandjy says.

At Fives, meanwhile, Frédéric Penza, Trade Finance Manager, sees huge opportunities for digitalisation to streamline processes for bank guarantees and documentary credits. "It will change the way we work with banks," he says.

Customers have also told HSBC they'd like to reduce the number of paper-based documents going through their systems. Regardless of their primary focus and what they hope digitalisation will do for their organisations, all agree they want to limit the number of systems they use.

The importance of multi-bank and bank-agnostic solutions

Kandjy feels that while banks are certainly innovating, his experience is that individual banks have largely developed their own solutions in the past. That's been a deal-breaker for Renault in partnering with some banks, even if the solutions they're offering are innovative. "What they want is for us to adopt their tools and go along with them and only them," he explains. "We can't work with one tool with one bank and another bank with another tool."

Penza agrees, saying that, "in the past, innovation by banks in trade finance products was mainly focused on bank interest, not on the customer requirement. That's why some products haven't had the expected success".

Vinay Mendonca, Global Head of Product and Propositions for HSBC's Trade and Receivables Finance, acknowledges that this proprietary approach has historically been the case. But, he says, the tide is changing. "Over the years, it's become clear that if we are going to succeed in digitalising trade, it has to be in an ecosystem-type way." This is true across the board – whether engagements with Bolero as a multi-bank platform, Swift for Corporates for a bankagnostic trade solution and even more recent blockchain initiatives.

Single-bank platforms are a thing of the past, agrees Ajay Sharma, HSBC Regional Head of Global Trade and Receivables Finance for Asia Pacific. "We're very clear about that. Banks shouldn't own anything; they should all hold equal shares so that every bank is an equal partner and contributes to the development."

Over the years, it’s become clear that if we are going to succeed in digitalising trade, it has to be in an ecosystem-type way.

VINAY MENDONCA, HSBC

The challenge, of course, is that international businesses already work with a number of banks of all types and sizes around the world. That typically means they have a host of different platforms and systems in place. To work effectively, Penza says, all banks must be able to access these platforms without any barriers.

However, it's not only the issue of banks, explains Béatrice Collot, Head of Global Trade and Receivables Finance for HSBC France. "It's the issue of the ecosystem, meaning the bank and corporates as well as the freight forwarder and shipping companies, among others," she says, adding that the goal for HSBC isn't to develop a new platform that everyone has to migrate to – but instead to create a technological solution that can connect existing platforms to the same ecosystem. This is an approach that the bank's customers welcome: the path forward, they say, is collaboration with fintechs, third parties, customers and even regulators.

Collaboration is the key to success

Co-creating with a range of partners is where HSBC has been spending much of its energy in recent years, says Mendonca. "Take the Corda platform, for instance," he explains. "This is where we see collaborating rather than competing." Corda is a blockchain-based platform that helps financial institutions and other players connect and distribute data through a decentralised ledger. One of the projects that HSBC has been involved in is Voltron, a consortium-led solution for end-to-end letter of credit transactions. HSBC's pilots using this solution have already brought remarkable reductions in the time it takes to process a letter of credit.

The Corda platform also keeps entry barriers low for banks. "It's not just about global banks," says Mendonca. "Smaller, in-country banks can join as well, and we've already seen a lot of interest from them."

The next step for the Voltron consortium is to bring other technology providers onto the platform, rather than recreating all that technology. HSBC has already conducted a pilot that involved the execution of an electronic bill of lading together with Bolero, and the aim is now to expand the project to involve other providers as well.

While bank collaboration has seen huge progress over the last couple of years, there is a strong argument for bringing fintech firms to the table as well. "They move faster," Mendonca says. "We're more than open to partnering with them."

Fintech firms are typically invested in one idea – and that idea might help make an existing or planned solution better or even help a bank expand its portfolio. An example is Tradeshift, an open business platform that entered into a partnership with HSBC in 2017. Through Tradeshift, HSBC now offers customers a bank-agnostic procure-to-pay capability for managing all their suppliers in an open account space. The bank has also integrated a supply chain financing option within the Tradeshift platform, which can bring the physical and financial supply chain together.

For real success, however, banks need to involve corporate clients early on in any development to understand their needs. The Corda letter of credit solution is a perfect example of this. "The first step is to get a working platform in place," explains Mendonca. "To do that, we did a proof of concept about two years ago and have taken a lot of client input as to what would and wouldn't work to create a use case." But that won't be the final use case, he says. "We will keep gathering ideas from our customers about how to make it better."

HSBC also worked with customers to co-create a smartphone tracker for receivables finance. "First we asked corporates what they would like to see in this application to track letters of credit," says Collot. "Then we added guarantees, and soon we'll also add receivables finance." She explains that the feedback the bank received over the course of the development is that not all customers want their employees to carry the solution around on their mobile phones. The next generation will therefore be a web-based solution.

Engaging the entire ecosystem

Digitalising the bill of lading is certainly a step forward, Kandjy says, but the challenge comes in implementing it down the line with customs authorities. "They still require paper for customs clearance," he says. "To be truly effective, they have to go digital as well."

That's why the role of governments will be an important driver for digitalising trade processes, Sharma notes. "From an Asian perspective, there's a big push in terms of going digital. We're seeing a lot of transactions that were historically paper-based being done in an electronic format and that's a trend that will continue to accelerate rapidly," he says.

The National Trade Platform in Singapore, for instance, is an ecosystem where all the pieces of information are digitalised, including customs information. The Hong Kong Monetary Authority has also been working on an open account trade solution on blockchain. Meanwhile, China's domestic bill market is also going electronic and India's exports regularisation, which was once all paper-based, is now digital.

The objective for HSBC is to bring the best solutions to their customers, whether its own or a third party's, and to use technology to connect ecosystems to create one bank-agnostic network. However, establishing standards across the industry is critical, Mendonca says. "What are the standards for a purchase order, an invoice, a certificate of origin, a bill of lading? If we could agree on those standards, then the technology you use is less of a problem." And the bank's customers have expressed they are ready to share their ideas and lend their voices as they innovate toward the future.

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