- Corporates increasingly rely on electronic channels for conducting basic as well as advanced transactions
- Digitalisation in trade has gained momentum
- Understanding client pain points, constraints and objectives were the top best practices identified by banks.
In the latest Asian Banker annual survey of trade finance trends across Asia-Pacific, the results reflected a substantial degree of consolidation as cross-border activities, including trade transactions slowed. While factors such as a sharp deceleration in commodity prices and China’s slowdown have reversed, the recent trade tariff escalation between China and the US and divergence in exchange rates between US dollar and other emerging market currencies have quite challenged the global trade outlook.
However, this slowdown is offset by a pocket of opportunities, arising from the growing importance of open account transactions, the shift from bank intermediated trade products to host-to-host and electronic channels. Notably, banks are looking to reduce some of the risk they take on through technological innovations.
Corporates increasingly rely on electronic channels for conducting basic as well as advanced transactions. Reporting, forecasting and simulation for trade services and the need to integrate different transaction banking products have fundamentally changed the rules of the game. The need to offer innovative trade finance (TF) client offerings through blockchain, delivery of end-to-end, tailor-made solutions and external partnerships with emerging players were the key themes from the survey.
Digitalisation in trade has gained momentum
While still lacking the scale of innovation achieved in cash and payments, trade finance now reflects the shift from traditional or documentary letter of credit (LC) based transactions to open-account and decentralised distributed ledger technology (DLT) based transactions. Banks across the region cited shifting customer expectations as key to adoption of digital solutions.
Both large and SME corporate clients of Commonwealth Bank of Australia (CBA) expect sophisticated solutions, anticipating which CBA undertook DLT and blockchain experiments over the past five years, bringing commercialisation to its use cases.
With explosion of local business and intra- trade opportunities in ASEAN, Chinese banks- China Zheshang Bank and China Construction Bank (CCB) linked client needs on liquidity as the foremost driver of product innovation. CCB cited ‘gradual’ application of blockchain, big data, cloud computing and artificial intelligence (AI) as new means to manage trade and financial risks.
From a systemic point of view, Bank of China (Hong Kong) (BOCHK) is pursuing it regional transformation strategy along the Belt and Road network through online and electronic optimisation and upgradation by mainly targeting mainland enterprises with global ambitions.
Push for digitalisation of customs in India has set the ball rolling for Kotak Mahindra and Yes Bank to explore possibilities of blockchain and robotics. Blockchain is touted to ensure smoother and secure execution of trade deals on any cross-border transactions.
Bank Mandiri in Indonesia revamped its platform, the MGT portal by adding single login capabilities.
The bank associated itself with a pilot program in adopting blockchain technology to incorporate a wide range of solutions for its bill collection processes, invoicing and purchase order financing.
Malaysian bank Maybank reported a declining trend in L/C market and highlighted the shift to advanced payments and collection on open account terms. Its counterpart, RHB Bank introduced robotics processing to improve upon its straight end-to-end processing.
Citing emergence of fintech and technology driven platforms, United Overseas Bank (UOB) committed to support the National Trade Platform (NTP) project to digitise trade finance.
Deutsche Bank noted evolution of client requirements, disruptive technologies like open new platforms and development of a comprehensive digital roadmap as critical themes to power the next phase of transaction banking revolution.
Deep engagements with clients - a prerequisite for growth
Positioning clients at the heart of operations is essential right from day one of executing a trade deal. In the survey, banks cited increasing demand by corporates for tailor-made solutions to match their specific and complex needs. Understanding client pain points, constraints and objectives were the top best practices identified by banks.
For CBA, customer preferences occupied top priority in meeting their risk management and complicated financing requirements for both large and small enterprises.
Harbin Bank in China focused on the development of its trade finance business from the aspects of integrated product mix and risk measurement for especially its SME clients. BOCHK in Hong Kong launched a one stop, cross-regional platform to strengthen high-end service capabilities, and to ensure stickiness.
With an objective to cater to a large domestic market, Kotak Mahindra Bank in India positioned two separate trade sales teams to cater exclusively to the pricing needs of MSME and SME segment. Sri Lanka’s Hatton National Bank launched the Export Direct Collection product to enable the delivery of export documents directly with an option to request for post shipment financing.
Forging partnerships with leading IT vendors to develop systems aligned with the Thai market place, Bangkok Bank implemented Host-to-Host (H2H) services with advisory functions to cater to offer best for the clients.
Given the heavy reliance on Foreign Direct Investment (FDI) inflows and increasing FDI enterprises, Vietcombank and VietinBank in Vietnam classified customized trade products that align with the needs of their SME and FDI clients. The banks cited service quality improvement via reduction in processing time and implementation of service-level agreement (SLA) as local best practice.
Collaboration and partnerships between banks and external parties
Commitment to investments in technology has taken multiple shapes and forms. Across the spectrum, banks are internally modernising their trade platforms, cooperating with other banks and emerging non-bank players to trigger simplification and automation in processes. The industry has also seen outsourcing and offshoring strategies in pursuit of offering cost effective, quick and reliable trade services as part of an integrated ecosystem.
Committed to exploring fintech application in the area of trade finance, BOCHK signed a memorandum of understanding (MOU) with the HK Applied Science and Technology Research Institute (ASTRI) to establish a Fintech collaboration centre.
With Thai authorities’ proactive approach in encouraging multiple digital solutions, Bangkok Bank highlighted increased levels of collaboration between upstream and downstream partners to fuel greater business integration. Alternatively, Krungthai bank developed an electronic Invoice Presentment and Payment (eIPP) platform for corporate customers to facilitate their businesses upstream to downstream.
Installing an innovation lab, a trend increasingly seen among leading global banks, Deutsche Bank tends to move its supply chain vertical into the digital age, with the establishment of think-tanks.
The forward-looking players in the industry are already anticipating blockchain powered platforms to influence the future profile of matching transactions, trade data and settlement, in addition to enhancing fraud and security management.