It’s been an interesting year. The ups and downs of the supply chain, the relentless pressures of stubborn inflation and widespread conflicts across Europe and the Middle East have reshaped the trade finance market forever. What does the concept of ‘security’ look like for global trade in 2025? How do we understand risk, let alone mitigate it? 

André Casterman, CEO of the Trade Finance Distribution Initiative (TFDI), is acutely aware of the challenges ahead. At the Trade Finance Investor Day, he sat down with Trade Finance Global (TFG) Editor Deepesh Patel to discuss the role of securitisation in building resilience within the trade finance ecosystem.

Structured credit – addressing the finance gap

The structured credit market plays a crucial role in global trade. An estimated 80-90% of the £20 trillion in global exports require outside financing. 

Traditionally, structured credit products take one of three forms:

1. Collateralised loan obligations (CLOs)
2. Mortgage-backed securities (MBS)
3. Asset-backed securities (ABS)

Casterman advocates for ABS because he believes it could help bridge the projected $2.7 trillion trade finance gap. Funding disparities tend to disproportionately affect small and medium-sized enterprises (SMEs), which can struggle to secure financing from traditional sources like banks.

Casterman sees ABS products as a great tool for the democratisation of credit in trade finance. “What we want to do now [with ABS] is to attract institutional liquidity from players who don’t have trade expertise, but appreciate the asset class because it represents the real economy.”

In trade finance, ABS enables the conversion of trade receivables (or owed capital) into structured investments, offering tranching options that cater to varying appetites for risk. “The most exciting thing about ABS,” he said, “is you can, as a liquidity provider, choose the risk level you want to be exposed to.”

For conservative investors, senior tranches offer lower risk documented through higher ratings, while junior tranches offer higher yields to those willing to take on more exposure. For Casterman, ABS offers more flexible, efficient avenues for institutional investors (e.g., pension funds, and asset managers) to participate in a market they may not know much about while providing much-needed liquidity for smaller, cash-light businesses.

Despite its critical importance to the real economy, the adoption of ABS in trade finance remains limited. Casterman says the number of publicly rated trade receivable securitisations is far too limited.

Businesses face tightened credit conditions and rising insolvencies, according to Allianz’s Trade Report. It documented an 11% increase in global business insolvencies this year alone, with a further 2% rise anticipated in 2025.

Risk challenges 

With inflationary pressures, rising insolvency rates and geopolitical tensions threatening even the lowest-risk assets, innovative risk management tools are integral to Casterman’s vision for ABS adoption.

“Trade credit insurance (TCI) has proven critical in this environment, helping businesses expand safely into new markets while offering institutional investors protection against default risks,” he said. “For SMEs, TCI is a cheaper alternative to traditional guarantees, enabling more accessible financing.”

By ring-fencing trade receivables and covering non-payment risks, these securities create a secure structure from which institutional investors can operate. “They can take risks where private credit insurers are not, extending their cover,” said Casterman. “This creates a fantastic opportunity to make trade finance more accessible to a broader set of non-specialised players.”

Private securitisations (like ABS) have traditionally been out of reach for smaller companies and outside investors. Casterman understands the risk factor is higher for both parties and wants to see greater involvement from SME-focused stakeholders. 

“Development banks and export credit agencies are pivotal players in protecting investors, especially in situations where traditional credit providers hesitate to engage. This is also why ITFA’s TFCOP can become a transformational initiative as it aims to increase the role of multilaterals in covering corporate risk.” The TFCOP, or Trade Finance Conference of Parties, is a summit held to address the gap in trade and supply chain finance, and was held for the first time in October 2024, in Washington DC.

Towards a standardised and inclusive trade finance ecosystem

The future of structured credit products like ABS promises equitable financing for global trade, but not without a range of challenging considerations. Casterman is interested in how innovation and regulation will converge.  

“More alignment between policy and technology will be critical as we move forward,” he said. “New laws like the UK’s Electronic Trade Documents Act are paving the way for greater adoption of blockchain and tokenisation.”

For many in the fintech space, tokenisation will play an important role, enabling the digitisation of illiquid assets. Blockchain, not without its challenges, is widely recognised for the greater transparency, accessibility, and efficiency it can provide. While tokenisation has largely been limited to liquid asset classes (e.g. US Treasury bills by Blackrock with Securitize as transfer agent) the expectation is that tokenisation practices will expand into trade receivables and other illiquid assets soon. This shift, Casterman observed, will “create new investment opportunities while aligning with advancements in blockchain technology.”

These advancements are largely targeted at democratising the trade finance market, particularly for those smaller players. But larger considerations are also at play, with environmental, social, and governance (ESG) policies now front and centre for investors, insurers and traders alike.

Casterman welcomes the opportunities that ESG considerations will present. “The appetite for sustainable and socially responsible investments is accelerating in both banking and capital markets. Trade finance must align with these expectations to remain relevant to capital markets. The richness of transaction data in trade flows will help us bring the appropriate level of sustainability to insurers and funders alike.”

Industry leaders have taken note, with Allianz’s Green2Green trade surety programme just one example of this shift towards sustainable trade security practices. The programme concentrates premium funds into certified green bonds, supporting low-carbon projects across sectors such as energy and transport while still delivering returns to investors.  

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Structured credit will play a greater role than ever in trade finance operations going forward. With asset-backed securitisation, trade credit insurance, and technological innovations like tokenisation, the sector is well-positioned to address challenges like finance gaps and volatility.

Take it from Casterman; “The journey is just beginning. By building partnerships, embracing technology, and aligning policies with market needs, we can create a more inclusive, sustainable, and resilient trade finance ecosystem.”

The post VIDEO | Structured credit: Closing in on the trade finance gap appeared first on Trade Finance Global.

A big part of bridging the trade finance gap can be accomplished by connecting disparate parties together. 

“Usually, both communities have never met,” said André Casterman, CEO of TFD Initiative and Chairperson of the ITFA Fintech Committee, at the 2024 Trade Finance Investor Day conference in London.

One manner to overcome this is by connecting asset managers with SME-focused originators, business-to-business platforms, alternative lenders, and so on.

This bridge between these communities can be built using asset-backed securitisation: “transforming SME high-yield, low-risk trade assets into notes that investors can get exposure on, at a junior level or senior tranche level.”

Watch the full interview for more.

The post VOXPOP | André Casterman on bridging the trade finance gap appeared first on Trade Finance Global.

Listen to this podcast on Spotify, Apple Podcasts, Podbean, Podtail, ListenNotes, TuneIn

Read the French version here

The digitisation of trade processes has become increasingly crucial in the modern global economy. Morocco, supported by various groups such as the European Bank for Reconstruction and Development (EBRD), is making progress in this area, though more support is needed.

To talk about the challenges and opportunities of industry-wide digitalisation initiatives, André Casterman, Founder, Casterman Advisory and Chair Fintech Committee, ITFA spoke to Youssef Ahouzi, CEO, Portnet, Mohammed Kabbaj, Managing Director MSC Morocco and Shona Tatchell, Director, Head of Trade Facilitation Programme, EBRD at EBRD’s Conference on the Digitalisation of International Trade in Morocco.

EBRD’s role in Morocco’s digital trade

The EBRD is taking a proactive role in facilitating the adoption of MLETR in various markets, including Morocco. The initiative begins with an assessment of the local legal environment, conducted in collaboration with partners like T3I, to evaluate its compatibility with MLETR’s requirements.

Tatchell said, “Our legal team will help in drafting legislation to help provide some guidelines to align the principles and the laws of MLETR.”

Capacity building is a central aspect of EBRD’s strategy, encompassing training sessions and workshops for legal professionals, policymakers, and other stakeholders in Morocco. These efforts aim to familiarise them with MLETR and its broader implications. 

Furthermore, EBRD emphasises the importance of stakeholder engagement and dialogue to build consensus around the new digital frameworks.

An important component of EBRD’s strategy involves the practical application of these initiatives through pilot projects and case studies. 

Tatchell said, “Implementing various pilots and supporting the development of electronic document providers, whether they are carriers or trade windows, is crucial. Doing this through case studies and demonstrating their success is going to be very powerful.” 

eBLs: The way forward for the shipping industry

As of early 2021, MSC was the first company to globally launch its e-Bill of Lading (eBL) solution. 

The company has since collaborated with various platforms and partners like WaveBL, adhering to the Digital Container Shipping Association (DCSA) standards to enhance the functionality and reach of their eBL.

MSC’s eBL solution is now offered in 110 countries, celebrated for its practicality and the efficiencies it introduces. 

Kabbaj said, “Our clients find it very practical and easy to use, and they appreciate the rapidity of the process and also the economies and the savings made or realised by utilising eBL.” 

The ultimate goal for the maritime industry is to achieve interoperability between different platforms to streamline trade and commercial operations for clients and all parties involved.

Highlighting the impact of digitalisation at a local level, Kabbaj said, “For MSC Morocco, just as an example, we can tell you that we are almost 100% digitalised since the request of quotes up to the delivery order and the payment of the invoice through the platform Portnet.” 

This is just one example of the broader shift towards digitalisation in Morocco, but it helps provide a roadmap for future endeavours. 

Portnet’s impact on trade efficiency

​​Since its launch in 2008 and formal establishment in 2012, Portnet has been instrumental in transforming Morocco’s approach to foreign trade. Serving as the sole window for international trade logistics in the country, Portnet has significantly streamlined processes at ports and airports, benefiting the entire trade community. 

Ahouzi said, “Portnet has played a crucial role as the single window for foreign trade in Morocco, facilitating international trade and logistics, imports, and operations at airports and ports, thereby supporting all aspects of foreign trade in the country.”

The implementation of the Trade Digitalization Project by Portnet has notably enhanced efficiency, transparency, and agency in trade operations, involving a broad spectrum of stakeholders. 

Portnet, Morocco’s single window for foreign trade, has been instrumental in digitalising trade logistics. Ahouzi said, “We have reduced the costs for all parties involved, allowing traders to use this platform 24/7 and access all services provided by various trade stakeholders.” 

These stakeholders include traders, importers, exporters, freight forwarders, customs brokers, shipping agents, and relevant governmental bodies such as customs and the Ministry of Foreign Trade. “we’ve fostered a true community among all these parties,” Ahouzi added.

Realising the benefits and challenges of digitalisation

Recent events, including the COVID pandemic and various global disruptions, have uncovered the vulnerabilities in maritime transportation, emphasising the need for operations that are more efficient, transparent, and sustainable. 

Recent developments have shown that the adoption of eBLs are an important step to address the fragility of the system.

Kabbaj said, “The advantages of eBL… are very simple. The exchange is online, secured, easier, can be done at any time, and through any device: PCs, tablets, smartphones, and especially faster, in a few seconds instead of days.”

Encouragingly, the adoption of eBLs is gaining momentum. In 2023, leading maritime shipping lines signed a pledge with DCSA to achieve 100% digitalisation of Bills of Lading by 2030.

With the momentum building, there is a growing call for all parties within the maritime ecosystem, including governments and banks, to join this digital transformation. Kabbaj said, “It’s time that everybody… joins the move and engages in this operation.”

While significant digitalisation progress has been made, challenges remain. One major issue is the adaptation of the legal framework to accommodate new digital solutions. The EBRD’s efforts in legislative drafting and capacity building are crucial in this regard. 

The banking sector also faces challenges. Despite their engagement in digitisation pilots, banks must invest significantly in upgrading their technology and training their staff. 

“The banks themselves are not necessarily fully prepared… they need to invest a lot in their own technology,” Tatchell explained.

Furthermore, there’s a pressing need for internal training to bridge the skills gap within banks. Tatchell suggests incorporating tech specialists into customer-facing roles and building secure systems to ensure robust cybersecurity. 

She emphasised the importance of collaboration within the banking sector to foster a cooperative environment rather than competition. 

Tatchell said, “This is not about competition between the banks to see who can adopt the coolest system. It’s actually about saying, how can we make this better for everybody?” 

The progress of digitalisation is clear, but what is equally clear is that the industry is not where it needs to be. It will take advocacy, cooperation and flexibility from all parties involved in the international trade industry.

Podcast | Le Rôle des Technologies Innovantes dans la Transformation du Commerce Marocain

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La numérisation des processus commerciaux est devenue de plus en plus cruciale dans l’économie mondiale moderne. Le Maroc, soutenu par divers groupes tels que la Banque Européenne pour la Reconstruction et le Développement (BERD), progresse dans ce domaine, bien que davantage de soutien soit nécessaire.

Pour parler des défis et des opportunités des initiatives de numérisation à l’échelle de l’industrie, André Casterman, fondateur de Casterman Advisory et président du comité Fintech de l’ITFA, a discuté avec Youssef Ahouzi, PDG de Portnet, Mohammed Kabbaj, directeur général de MSC Maroc et Shona Tatchell, directrice et responsable du programme de facilitation du commerce de la BERD, lors de la conférence de la BERD sur la numérisation du commerce international au Maroc.

Le Rôle de la BERD dans le Commerce Numérique au Maroc

La BERD joue un rôle proactif en facilitant l’adoption de la MLETR dans divers marchés, y compris le Maroc. L’initiative commence par une évaluation de l’environnement juridique local, réalisée en collaboration avec des partenaires tels que T3I, pour évaluer sa compatibilité avec les exigences de la MLETR. Tatchell a déclaré : « Notre équipe juridique aidera à rédiger des lois pour fournir des lignes directrices afin d’aligner les principes et les lois de la MLETR. »

Le renforcement des capacités est un aspect central de la stratégie de la BERD, comprenant des sessions de formation et des ateliers pour les professionnels du droit, les décideurs politiques et d’autres parties prenantes au Maroc. Ces efforts visent à les familiariser avec la MLETR et ses implications plus larges.

En outre, la BERD met l’accent sur l’importance de l’engagement et du dialogue avec les parties prenantes pour construire un consensus autour des nouveaux cadres numériques.

Un élément important de la stratégie de la BERD consiste en l’application pratique de ces initiatives à travers des projets pilotes et des études de cas.

Tatchell a déclaré : « La mise en œuvre de divers pilotes et le soutien au développement de fournisseurs de documents électroniques, qu’ils soient transporteurs ou guichets commerciaux, est cruciale. Faire cela à travers des études de cas et démontrer leur succès sera très puissant. »

eBLs : La Voie à Suivre pour l’Industrie du Transport Maritime

Depuis début 2021, MSC a été la première entreprise à offrir une solution de lettre de connaissement électronique (eBL) à l’échelle mondiale.

L’entreprise a depuis collaboré avec diverses plateformes et partenaires tels que WaveBL, en adhérant aux normes de la Digital Container Shipping Association (DCSA) pour améliorer la fonctionnalité et la portée de leur eBL.

La solution eBL de MSC est maintenant proposée dans 110 pays, célébrée pour sa praticité et les gains d’efficacité qu’elle introduit.

Kabbaj a déclaré : « Nos clients trouvent cela très pratique et facile à utiliser, et ils apprécient la rapidité du processus ainsi que les économies réalisées en utilisant l’eBL. »

Un ultime objectif pour l’industrie maritime est d’atteindre l’interopérabilité entre différentes plateformes afin de rationaliser les opérations commerciales pour les clients et toutes les parties impliquées.

Soulignant l’impact de la numérisation à un niveau local, Kabbaj a déclaré : « Pour MSC Maroc, à titre d’exemple, nous pouvons vous dire que nous sommes presque 100 % numérisés depuis la demande de devis jusqu’à l’ordre de livraison et le paiement de la facture via la plateforme Portnet. »

Ceci n’est qu’un exemple du passage plus large à la numérisation au Maroc, mais il aide à fournir une feuille de route pour les efforts futurs.

L’Impact de Portnet sur l’Efficacité du Commerce

Depuis sa création en 2008 et son établissement formel en 2012, Portnet a joué un rôle déterminant dans la transformation de l’approche du Maroc en matière de commerce extérieur. En tant que guichet unique pour la logistique et le  commerce international dans le pays, Portnet a considérablement simplifié les processus dans les ports et les aéroports, au bénéfice de l’ensemble de la communauté commerciale.

Ahouzi a déclaré : « Portnet a joué un rôle crucial en tant que guichet unique pour le commerce extérieur au Maroc, facilitant le commerce international et la logistique, les importations, les opérations dans les aéroports et pour tout le commerce extérieur au Maroc. »

La mise en œuvre du projet de digitalisation par Portnet a notablement amélioré l’efficacité, la transparence et l’autonomie dans les opérations commerciales, impliquant un large éventail de parties prenantes. Portnet, le guichet unique du Maroc pour le commerce extérieur, a été déterminant dans la numérisation de la logistique commerciale. Ahouzi a déclaré : « Nous avons réduit les coûts pour toutes les parties concernées, permettant aux opérateurs économiques d’utiliser cette plateforme 24/7 et d’accéder à tous les services fournis par les différents acteurs du commerce

Ces parties incluent les commerçants, les importateurs, les exportateurs, les transitaires, les freight forwarders, les agents maritimes et les organismes gouvernementaux concernés tels que la douane et le ministère du Commerce extérieur. « Nous avons créé une véritable communauté avec toutes les parties impliquées », a ajouté Ahouzi.

Réaliser les Avantages et les Défis de la Numérisation

Les événements récents, y compris la pandémie de COVID et diverses perturbations mondiales, ont révélé les vulnérabilités du transport maritime, soulignant la nécessité d’opérations plus efficaces, transparentes et durables.

Les développements récents ont montré que l’adoption des eBLs est une étape importante pour résoudre la fragilité du système.

Kabbaj a déclaré : « Les avantages des eBLs… sont très simples. L’échange est en ligne, sécurisé, plus facile, peut se faire à tout moment et sur n’importe quel appareil : PC, tablettes, téléphones portables, et surtout plus rapide, en quelques secondes au lieu de jours. »

De façon encourageante, l’adoption des eBLs prend de l’ampleur. En 2023, les principaux acteurs maritimes ont signé un engagement avec la DCSA pour atteindre 100 % de numérisation des lettres de connaissement d’ici 2030.

Avec l’élan qui se construit, il y a un appel croissant pour que toutes les parties de l’écosystème maritime, y compris les gouvernements et les banques, rejoignent cette transformation numérique. Kabbaj a déclaré : « Il est temps que tout le monde… rejoigne le mouvement et s’engage dans cette opération. »

Bien que des progrès notables aient été réalisés en matière de numérisation, des défis subsistent. Une question majeure est l’adaptation du cadre juridique pour accueillir les nouvelles solutions numériques. Les efforts de la BERD en matière de rédaction législative et de renforcement des capacités sont cruciaux à cet égard.

Le secteur bancaire est également confronté à des défis. Malgré leur engagement dans les projets pilotes de numérisation, les banques doivent investir considérablement dans la mise à niveau de leur technologie et la formation de leur personnel.

« Les banques elles-mêmes ne sont pas nécessairement entièrement préparées… elles doivent beaucoup investir dans leur propre technologie », a expliqué Tatchell.

En outre, il y a un besoin pressant de formation interne pour combler le fossé des compétences au sein des banques. Tatchell suggère d’incorporer des spécialistes en technologie dans les rôles de relation client et de construire des systèmes sécurisés pour garantir une cybersécurité robuste.

Elle a souligné l’importance de la collaboration au sein du secteur bancaire pour favoriser un environnement coopératif plutôt que concurrentiel.

Tatchell a déclaré : « Il ne s’agit pas de compétition entre les banques pour voir qui peut adopter le système le plus cool. Il s’agit en fait de dire, comment pouvons-nous améliorer cela pour tout le monde ? »

Les progrès de la numérisation sont évidents, mais il est tout aussi clair que l’industrie n’est pas encore là où elle doit être. Il faudra du plaidoyer, de la coopération et de la flexibilité de la part de toutes les parties impliquées dans l’industrie du commerce international.

The post PODCAST | The role of innovative technologies in transforming Moroccan trade appeared first on Trade Finance Global.

In July 2023, TFG Distribution Finance was launched to drive liquidity into the trade finance market, from institutional capital, banks, and credit funds, facilitated by TFG and its partners.

In doing so, TFG Distribution Finance can be used to identify and address unmet demands in the trade finance market, working towards closing the $2.5 trillion trade finance gap – a significant barrier to international trade impacting mid-market companies and small to medium-sized businesses (SMEs) in particular. 

TFG Distribution Finance works with global banks as well as traditional institutional investors, non-bank lenders, and alternative credit funds to participate in the trade finance market. 

Through the introduction of new sources of structured capital into the market, TFG Distribution Finance seeks to increase available liquidity and service the unmet demand for private credit from companies on TFG’s platform. 

TFG has partnered with key stakeholders across the industry including Allianz Trade, Enigio, the International Trade Forfaiting Association’s (ITFA’s) DNI Initiative, and Sullivan. 

In this fireside chat, Andre Casterman, CEO, TFD Initiative and Chairperson of the ITFA Fintech Committee, and Mark Abrams, MD, Trade and Receivables Finance, Trade Finance Global, sat down to discuss distribution and its growing importance at TFG, embodied by the TFG Distribution initiative. 

Originators and their importance 

Originators play a vital role in the industry, as they provide liquidity to end customers or clients. In traditional trade, originators are often banks. However, in sub-investment grade markets, factoring companies can also serve as originators.

Recently, new players have emerged in the lending market who aren’t traditional banks. Often referred to as “fintechs,” these entities don’t actually sell technology. 

Instead, they focus on offering financial liquidity to SMEs. This has the effect of making supply chain finance more accessible to both mid-sized companies and SMEs.

Distribution and its importance for trade finance 

Distribution plays a crucial role, especially for non-bank lenders who don’t have substantial balance sheets to fall back on. These lenders often rely on third parties and partners to provide the necessary funding. As Casterman put it, this is essentially a case of “funders funding the funders.”

In the area of distribution, originators obtain funding from various sources such as institutional investors, asset managers, and banks. Credit insurers are also involved in this sector, and typically assuming the credit risk.

Casterman said, “There is really strong collaboration in the distribution space, everyone can add value to transactions as they see fit”. 

Perspective of capital markets, investors, and funders on the asset class

The additional element in this scenario is the involvement of capital markets and institutional investors. 

Casterman said, “I heard about distribution and capital markets in 2011. The banks were really keen to start working with institutional investors, as they were feeling the impact of Basel would hit them sooner or later”

Now, we are on the verge of this becoming reality, as the Basel regulations will come into effect in 2025.

The issue here relates to alignment on the pricing side. Banks focus on investment grade corporates with a low yield on transactions, focussing on low-risk asset classes. 

Occasionally, this leads to a misalignment in pricing due to the anticipations of institutional investors. Consequently, the market’s perspective has evolved from one centred on early adopters to one where institutional investors are showing interest in alternative lenders that focus on SMEs. 

Evolution of TFG Distribution Finance

Launched in the summer of 2023, TFG Distribution Finance represents the evolution of TFG’s financing arm, focusing on onboarding additional liquidity providers and addressing the needs of different funders. 

This approach acknowledges that one size does not fit all in terms of funding requirements, highlighting the importance of collaboration among various market participants.

Abrams said, “For the last nine years our sole aim on the financing side has been to onboard further liquidity providers. That could be banks, funds, alternative lenders; to work with them and map their risk criteria and do the same, on the SME, corporate, FI side, and just introduce both parties”. 

However, in the past two years, TFG has seen a change in the market from both the lending and borrowing side.

Abrams said, “Large institutional funders may be interested in accessing the SME space, but for whatever reason will just not be equipped to originate and hold those assets. So, we saw a real need to step into this space and actually service, hold, build books of assets, for those different funders”. 

Abrams believes that working with technology providers and new capital providers presents a dynamic strategy to expand the business and address the $2.5 trillion trade finance gap, focusing on SMEs and the mid-market.

TFG Distribution Finance aims to evolve and bring in more market participants. Abrams said, “We want to do more than a proof of concept. We want to build different asset books and bring more funders into the market”. 

Through education and information, TFG aims to broaden the understanding of asset books and enhance distribution.

Abrams said, “If you’re dealing with a small pool of actual institutional investors or banks, we’re never going to really close the gap. But by bringing in new funders, and educating and informing them, it will allow increased capacity to flow into the market”.

The post Fireside Chat | A breakdown of distribution and an introduction TFG Distribution Finance appeared first on Trade Finance Global.

Dubai’s undeniable growth in trade, logistics and the financing of international commerce has made it one of the most desirable trade destinations in the world. This is why I invested more time with members of the ITFA Middle East committee in 2022. 

Given the strong regional appetite for advanced technologies, we established the Middle East Tradetech Adoption Group to drive collaborative work on the digital negotiable instruments (DNI) Initiative, the TFD Initiative and other advanced innovations.

During the MENA conference panel, industry leaders shared the progress achieved on the DNI Initiative, i.e., aiming to adopt MLETR in order to digitise negotiable instruments across transport, logistics and banking.

On stage, members of the new tradetech group (as listed in the above image) reported on market dynamics related to MLETR and their recent pilot transactions. We debated the blueprint for digital negotiable instruments and shared five priorities.

1. Align policy to technological developments

DNIs require adapting national laws to deal with new technologies, aiming at upgrading existing logistics, trade and trade finance processes. Middle Eastern policymakers have promptly embraced MLETR since its publication in 2017 and delivered two of the initial jurisdictions – Bahrain (2019) and ADGM (2021) – which are ready to embrace the use – and enforce the legality – of electronic transferable records.

Amr El Haddad, head of working capital solutions CEEMEA, Kyriba said, “With the fragility of supply chains, inflation, and the geopolitical risks, world trade has never been more exposed, and subsequently, the need for more and better technology has never been clearer.”

As illustrated in the below chart, the priorities are 

• To align national laws with MLETR to ensure electronic negotiable instruments are legally enforceable
• To implement interoperable technologies 
• Once those two steps are completed, adding new value may be prioritised.

Vishnu Purohit, group head of trade product management, Emirates NBD, said, “We piloted the DNI Initiative and validated that the additional MLETR technology is pretty simple to use. The impact on business practices is minimal, which is a major benefit.”

2. Focus on interoperability to scale the use of the new practice

The emergence of distributed ledger technology (DLT) and “digital assets” extend Open Banking practices with “asset and value transfer”. This capability is particularly suited to achieve the level of interoperability required for title documents such as negotiable instruments. In other words, cloud platforms and APIs are not sufficient on their own.

A member of the Middle East Tradetech Adoption group said, “We witness great appetite from various jurisdictions to embrace advanced technologies such as DLT, as policymakers want to help the market benefit from new digital options. MLETR is no exception and everyone will benefit.”

Embracing interoperable technologies, as proposed by DNI Initiative’s dDOC specifications, enables the market to scale the use of MLETR-compatible instruments before more value can be added.

3. Add new value to digital flows

As the adoption of e-negotiable instruments scales, the next opportunity for the market is to add more value to those enforceable electronic records. 

Four examples include: 

• Automated securitisation for the sale of assets to institutional investors 
• Programmable transaction-level carbon offsetting
• Escrow payment and instant settlement 
• Double financing fraud prevention and more to be developed by the market.

Those features are critical to extending further benefits such as increasing balance sheet velocity, achieving net zero, and mitigating credit, operational and fraud risks, as proposed by the below chart.

Sean Bowey, head of products, global trade & receivables finance, SABB said,  “We are witnessing strong appetite from the Saudi policymakers to embrace MLETR, and have established a continuous dialogue on the way forward, with the support of UNCITRAL.”

4. Promote open platforms and eco-systems

Treasury management systems, supply chain finance, traditional trade finance, transport & logistics and trade distribution platforms are specialised software solutions which have proven – and will continue to prove – their value. 

However, one typical issue with most of them is that they operate as closed ecosystems. Closed ecosystems worked in the previous eras, but trade is trending towards an open ecosystem. 

André Casterman, ITFA & DNI Initiative, said, “DLT is a 21st-century innovation that needs to be embraced with a 21st-century open banking mindset; that’s where most trade-focused consortia have failed so far (not only the bankrupt ones).”

Interoperability comes in different forms, and in the area of DNIs, platforms that embed the DNI Initiative’s dDOC specifications become focused on the instrument level. 

This means the trust is embedded in the electronic record that represents the negotiable instrument (with the associated verifiable token written on a public blockchain). 

This also means each party can use separate software solutions and channels. With such a level of interoperability, the issue of closed ecosystems will finally be solved.

As indicated in dark blue on the above chart, the interoperable negotiable instruments represent payment obligations such as bills of exchange (BoE), bills of lading (BL), and promissory notes and can navigate from one platform to another as self-contained and verifiable “digital assets” (as per DNI Initiative’s dDOC specifications).

The light blue layers outline additional features that can be operated either on-chain, such as automated transaction-level carbon offsetting, with an escrow payment, and on-chain settlement. They can also be operated on the basis of dedicated technologies/legal schemes for automated repackaging, fraud prevention and other types of value-added processing.

5. Expand Supply Chain Finance

Corporate clients active at the international level love the BoE used under English common law, as it provides extended credit from a seller to a buyer across multiple jurisdictions. 

The most common use case for a BoE is when a seller operates across multiple jurisdictions. Given the long experience of the corporate market with this instrument, it provides a comfortable solution. 

Other supply chain finance programmes, like Irrevocable Payment Undertakings (IPUs), require additional paperwork. BoEs simplify the process, as there is no need for additional documentation for buyers to review.  Additionally, BoEs are not characterised as bank debt, unlike IPUs, which have accounting implications. In other words, the IPUs present a risk of re-classification, whereas the BoE shields corporates from such risk. 

Vishnu Purohit said,  “Digital Bill of Exchange auto-embedded in a supply chain payable workflow can potentially replace proprietary payment service agreements.”

Download the article here

The post 5 industry priorities for digital negotiable instruments appeared first on Trade Finance Global.

DLT offers the financial services industry a new piece of infrastructure to push the boundaries of Open Banking. But it doesn’t come without its challenges. TFG heard from tradetech expert André Casterman on future use cases for blockchain in assets, trade and transaction banking.

DLT enables financial institutions to share a common understanding of assets and transactions with their clients and counterparties, embedding interoperability in any transactional process whilst complying with data privacy regulations.

I first heard about the new disruptive technologies (DLT and blockchains) in 2015, and I was not convinced by all the hype back then. 

Neither did I understand the need for a new database technology, nor could I accept the need for financial institutions to communicate differently. 

The use of the Internet and encryption technologies was established, the use of cloud applications was growing, and application programming interfaces (APIs) started to make their mark, particularly in payments following ambitious open banking regulations (e.g., the second payment services directive). See my previous TFG article on the evolving payments landscape.

How could DLT help?

Was building trade consortia the right step forward?

When banks set up the initial trade-focused consortia in 2016/2017, I wondered why such excitement would only be used as a new messaging infrastructure, albeit decentralised.

It appeared as if those consortia applied a 21st-century technology (i.e., DLT and blockchains) on a 20th-century business idea (i.e., to build closed platforms).

The consortia got it right when it came to embracing DLT, but the latter, using the new technology to build proprietary ecosystems, has been the main issue the industry has seen. 

Using DLT to support new closed ecosystems is shortsighted, as DLT offers us the opportunity to push the boundaries of open banking and engage with interoperable transactions.

Lesson learned #1 – DLT is a 21st-century innovation that needs to be embraced with a 21st-century open banking mindset; that’s where most trade-focused consortia have failed so far (not only the bankrupt ones).

DLT extends open banking to risk mitigation

The value of DLT lies far beyond acting as a decentralized communications infrastructure. 

DLT introduces a set of advanced risk mitigation features that is outlined in the diagram below in order of increasing importance:

1. Feature 1: On-chain data exchange
2. Feature 2: Tracking of assets and transactions
3. Feature 3: Instant payments using the on-chain value
4. Feature 4: On-chain investment products

The first two features (1 & 2) are not expected to be regulated whilst the next 2 (3 and 4) are subject to regulatory approval. 

Figure 1. DLT extends open banking to risk mitigation. Regulated and non-regulated on-chain DLT features. Source: Casterman Advisory.

Using DLT purely as a communications infrastructure (feature 1) is quite limiting and unimaginative, as the technology offers several advanced features (features 2 to 4) that legacy technologies (e.g., including SaaS platforms) cannot offer in the same open and interoperable way, at least not on their own.

The benefits of those 4 features – when compared to traditional rails – include reduced cost, increased traceability, visibility and control, embedded automation and programmability which reduce operational, fraud and settlement risks.

Lesson learned #2 – The trade industry will benefit from DLT through the adoption of its most differentiating features embedding risk mitigation (i.e., features 2 to 4).

DLT supports major industry innovations

In 2019, as part of the trade-focused Fintech Committee that I chair, the committee set up two collaborative initiatives to drive technology-driven market innovations. 

Both initiatives are taking advantage of DLT in very targeted ways, and aim to increase interoperability and foster open banking in trade finance.

Whilst DNI Initiative concentrates on digital origination, TFD Initiative addresses gaps in expanding distribution to institutional, and retail, investors.

• DNI Initiative – The initial goal of DNI Initiative is to help financial institutions adopt MLETR-compatible laws and leverage DLT as a trusted registry of electronic trade documents and negotiable instruments. This is why DNI Initiative takes advantage of features 1 & 2. Over time, there will be room for expanding the DNI Initiative to on-chain automated payments (feature 3). It could also take advantage of on-chain liquidity and therefore expand to feature 4.

• TFD Initiative – The TFD Initiative has opened up the trade investment class to institutional investors. As we achieved this goal already in 2020, we embarked on applying DLT to expand our reach to retail investors. This was achieved in 2022 when the Trada token was launched. Trada is a Security Token Offering (STO) regulated by the Liechtenstein Financial Market Authority. This is why TFD Initiative takes advantage of DLT up to feature 4.

Lesson learned #3 – DLT will have far-reaching impacts in financial services – new asset classes will be accessible to retail investors (e.g., illiquid ones such as trade finance and instant global payments will be the norm and almost free to use).

Figure 2. An overview of the DNI Initiative and the TFD Initiative. Source: Casterman Advisory.

Lesson learned #4 – Specialisation on specific segments and features has been the approach used when setting up the ITFA DNI Initiative and TFD Initiative. Both focus on inserting new Tradetech components in the trade ecosystem. The recipe works very well as we introduce superior open banking / interoperability features.

Consortia are dead, long live consortia!

Bank consortia are critical as they enable the industry to own and govern a market infrastructure. 

This approach has been very successful in European payments (e.g., EBA Clearing which is owned by 48 banks) and the trade market could also take advantage of such ownership and governance models. 

Over the last 5 decades, banks have successfully set up a series of financial market infrastructures (FMIs) to address collaborative ambitions. Examples include Euroclear, SWIFT, EBA Clearing, P27, most Automatic Clearing Houses (ACHs).

However, in trade finance, the approach has not delivered the expected result as banks took the development risks on their own shoulders by designing new value propositions and building new technologies from scratch.

A lower risk approach suggests scaling proven technologies (e.g., those demonstrated by the DNI and TFD initiatives) through a bank-owned and bank-governed scheme.

Effectively wrapping existing technology solutions by expanding the delivery scope to the one a financial market infrastructure can offer (e.g., embedding more regulated functions). This way, banks avoid taking the initial delivery and market adoption risks, whilst focusing on expanding the value propositions beyond technology.

Lesson learned #5 – Bank consortia are not dead, they have been relevant mainly in payments and securities so far; trade banks just need to embrace proven (i.e., delivered and adopted) technology innovations when building consortia, thereby eliminating the delivery and market adoption risks.

From pitfall to promise

I, therefore, believe that consortia offer a strategic option to banks to pursue strategic trade innovations. 

They just need to be re-imagined based on partnerships with hand-picked technologies and vendors. 

The hard lessons learned throughout 2016-2023 will help banks avoid some pitfalls.

The post Is DLT the new foundation for interoperable transactions in banking? appeared first on Trade Finance Global.

The evolution of cross-border payments is more exciting than ever. However, for banks, the priority is to use the payment data for compliance and differentiation. So, get your data in order.

Continued innovations in cross-border payments

Cross-border payments have transformed over the last six years like never before. 

Around a decade ago, new entrants prompted SWIFT to find a way to increase visibility by tracking global payments processed by correspondent banks. And so, SWIFTgpi was born.

More recently, the growing adoption of––and concerted industry migration to––ISO 20022 in the cross-border and high-value payments space promises to be valuable. This, as well as the ISO norm, will improve data structures and allow richer data to be embedded in instructions and statements. 

It is a long overdue move, as ISO 20022 launched two decades ago. This fact alone presents various operational challenges for banks, as older IT systems are not designed to handle data-rich formats––such as ISO 20022.  

SWIFTgpi and ISO 20022 provide much-needed incremental improvements to the traditional cross-border payments space but aren’t moving the needle far enough. 

Thankfully, transformational innovations have emerged and are being adopted. 

These advancements have been built on borderless 21st-century technological foundations and enable payments to be seamlessly embedded into commercial transactions, thereby reducing settlement risk. 

New technologies such as distributed ledgers offer a way to bring such improvements to person-to-person remittances, micro-payments, and small- and medium-sized enterprises (SMEs) payments. 

Various payment and securities processes are already moving on-chain to remove frictions, increase transparency on end-to-end transactions, and combat fraud (e.g., public blockchains). 

The openness of policymakers (e.g., UK, EU, UAE) to digital assets and tokenisation will definitively act as a catalyst in institutional segments. 

Moving on-chain will facilitate Delivery versus Payment (DvP) settlement of tokenised assets, whilst increasing transparency and immutability of data.

Hint #1: whether you like it or not, there is no escape to tokenisation and digital assets. It’s a natural evolution of the Internet.

Increased complexity for transaction banks

Incremental and transformational innovations demonstrate the continued appetite for the industry to achieve cheaper, faster, more transparent, and more accessible cross-border payments. 

These industry-wide advancements show a drive to deliver on the vision outlined by the Financial Stability Board (FSB) in its G20 cross-border payments roadmap.

Whilst such moves offer attractive options to end customers, they also drastically increase the complexity for banks’ IT, operations and compliance teams. 

This is the natural fallout of new channels, systems, and data structures being introduced within their technology infrastructures. 

Stephen Wojciechowicz, senior principal, product management at BNY Mellon, recently confirmed this, saying, “The challenge [with ISO 20022] is going to be that the underlying source data applications need to be able to communicate that. 

For example, in our static data for address, there isn’t a separate data field for the street. So, we will have to be able to change things to accommodate that structured data format.”

Hint #2: payment standardisation will be centred around ISO 20022, and those semantics will be supported by a mix of closed and open communications technologies.

Getting your data in order is more important than ever

Long considered a purely technical function, archiving transaction data was previously only a concern for the bank’s IT people to take care of. 

That was about 15 years ago. The need to access data archives was fairly limited and mostly linked to ad-hoc operational needs and client requests.

Since the 2008 global financial crisis, however, regulatory requirements revealed the importance of this very function, as accessing transaction archives suddenly got on the compliance officers’ priority list. 

Subsequently, being able to demonstrate record keeping of transactions and to report promptly on payments–– whether archived or in production––became top priorities.

Access to payment data is also important––in an automated way––for front-office operations teams (e.g., offering online access to transaction details for clients via portals) and for back-office operations teams (e.g., getting real-time alerts on failed transactions). 

Furthermore, business and compliance functions are combining payment data with AI-driven algorithms to gain deep and contextual insights never achieved before.

While having a single central database of all payment transaction data would be ideal for accessibility, experience has shown that this is unrealistic for financial institutions. This incompatibility stems from the many disparate data sources, geographic locations, specialised internal systems and channels in use. 

However, applying data management technologies to link, correlate, track, report, and alert on end-to-end flows helps financial institutions tackle the data accessibility challenge.

Hint #3: If you take away one piece of advice from this article, get your payment data in order. Now.

Payment data to comply and differentiate

Compliance and competition remain the two imperative objectives for financial institutions. 

Whichever payment innovation becomes relevant for your financial institution, the granular data derived from payment flow is the actual ingredient to make it happen.

Hint #4: While many new payment options need more time to gain traction, investing in data technologies will be a safe investment for financial institutions.

The following table highlights the many use cases where payment data is either critical for operations and compliance, or gets elevated to a strategic level for competitive differentiation.

Leveraging data for competitive advantage requires a significant data management overhaul. 

That includes identifying and assessing the value of existing data, designing a scalable data platform, and developing a long-term data strategy to help the organisation achieve impact at scale. 

It also requires an up-front investment in data management technologies, as well as skilled teams.

Data technologies fill the gap

Keeping up with the pace of innovation in cross-border payments can be a challenge for most transaction banks, given the number of available new options and evolving client expectations.

Going forward, those financial institutions with the best data systems will develop a competitive advantage, given how transaction data can help with compliance and increased commercial differentiation.

The post The evolving payments landscape: how data-sharing makes all the difference appeared first on Trade Finance Global.

During my lifetime, much has been said about the idea of “fintech disruption”. 

About five years ago, for example, emerging technology companies identified as “fintechs” were said to represent a competitive threat to transaction banks. 

They were feared by the latter for allegedly attempting to create the next wave of “digital banking” players.

Some of those fears turned out to be justified, as fintechs active in the payments space have been trying – and some successfully – to grab market share from incumbent high-street banks.

However, those that have succeeded have been highly focused on specific segments or geographies, and on keeping their cost base as low as possible.

In contrast, fintechs active in trade finance have demonstrated a very different attitude.

Partnering with banks has been their #1 priority, at least for most. 

In the niche trade finance segment, the last two years have indeed shown that major banks have benefitted from new technology propositions. But why is that? 

Here are what I believe to be the key ingredients for fintech success:

• Laser focus – Fintechs are laser-focused on delivering specific value propositions; they often become the best at it; and their highly specialised value propositions become attractive to incumbents, including the top players.
  
  
• Extremely agile – Fintechs are very agile and adapt to market trends; they consider their early adopter banks as strategic partners in their product development roadmap; co-design becomes the norm.
  
  
• Latest technologies – Fintechs don’t suffer from legacy business models and technologies. They develop and assemble the latest technologies while making them compatible with existing technologies. This includes delivery of advanced automated processes, DLT, AI, APIs, cloud, etc.
  
  
• Standardised software solutions – Fintechs provide banks with off-the-shelf software solutions which can be configured to match specific needs. This industrial approach not only accelerates time-to-market for banks, and also drastically decreases performance risks for banks.
  

• Pay as you go – Fintechs want to prove themselves by facilitating gradual adoption, i.e. without the need for their clients to take a CapEx decision (e.g. no software license acquisition). This drastically reduces risks for early adopters.
  
  
• No legacy bias – Fintechs are not biased by legacy revenues (e.g. software license fees) and technology models (e.g. messaging revenue). They want to demonstrate their value-add in the fastest and most cost-efficient way, with no defensive approach.

Fintech plus points

Recent bank-fintech partnerships have highlighted that the fintech proposition presents strategic opportunities for financial institutions (FIs).

Delivering enhanced value propositions to their own clients, for example, or automating critical processes, or embracing legal developments in the market (e.g. the Model Law on Electronic Transferable Records).

If any disruption is to be expected, it is now generally accepted that it won’t be driven by those highly specialised technologists.

As a consequence of recent developments, partnering with fintechs is now accepted as bringing many benefits to transaction banks, their clients, and funding partners. For example:

• Short time to market thanks to use of cloud-based platforms
  
• Non-intrusive technologies ensuring seamless integration with existing systems
• Low set-up cost and usage-based running cost
• Optimal user experience
• Continuously and fast-evolving products
• Strategic enablers for banks to innovate as a community (multi-bank infrastructure)
• Best at combining legal and business expertise with latest technologies.

New horizons for fintechs

Going forward, fintechs present some strategic opportunities for financial institutions. Two examples come to mind:

1) Following the impact of Basel regulations, new technology-based trade distribution market practices have been adopted by a growing community of banks and institutional investors.

This offers industry stakeholders the opportunity to establish a new financial market infrastructure in the trade distribution space.

As trade volumes grow rapidly, banks have an opportunity to strengthen this new many-to-many space by establishing a bank-owned and bank-governed market infrastructure.

The challenge, however, is to combine proven technology propositions with a new multi-bank governance structure.

2) On another front, the alignment of national laws with the MLETR is introducing an initial concrete implementation of “digital asset” technologies to banks (e.g. DLT).

This will be a catalyst to digitise trade documents flows and to move away from closed ecosystems.

It promises to help banks adopt a 21st century model whereby trust lies in interoperable digital assets (e.g. a freely transferrable electronic bill of exchange) vs. relying on trusted channels (e.g. SWIFT).

Assuming both tracks develop positively in the 2022-2024 period, the initially feared fintech wave will have demonstrated its strategic importance to both global and local banks.

Read our latest issue of Trade Finance Talks, Spring 2022

Read here

The post The secret sauce: Maximising bank-fintech collaboration opportunities in trade finance appeared first on Trade Finance Global.

Banks and fintechs have not always been the closest playmates, but ITFA’s Andre Casterman is on a mission to help them work together.

As a 30-year veteran of the tradetech industry – he joined SWIFT in 1991 – Casterman is a fintech leader with a vision for change.

He is also the founder of Casterman Advisors, and he currently chairs the International Trade and Forfaiting Association’s (ITFA) Fintech Committee – a position from which he is starting to see progress in the digitisation of trade.

“Trade is still not completely digitised, but many things are progressing in the meantime,” said Casterman. 

“I think we have to distinguish what can be digitised without any need for policy change, versus the specific instruments that require policy change – change of law, for instance, or adoption of the Model Law on Electronic Transferable Records (MLETR) – in order for digitisation to be acceptable and those digital instruments to become enforceable. 

“So that’s really the major challenge: it’s that often, the technology can’t go far unless the policymakers take action.”

Complement: don’t compete

Casterman launched the ITFA Fintech committee in 2017, with the goal of driving fintech product innovation and seeking out early adopters – a role which builds on his experience at SWIFT.

“I was, indeed, already in the fintech space since 2016, and I saw much more openness from the banks to start working with highly specialised technology players,” said Casterman. 

“Gradually, I identified that those fintechs were not understood by banks, and were often perceived as potential competition.

“So, my first objective has been to clarify their positioning, to show they’re not competing – they’re helping – and to show that they are really complementing each other.” 

PODCAST: The evolution of SWIFT

Bearing fruit

As of 2020-21, Casterman said his advocacy both for bank-fintech and fintech-fintech collaboration is bearing fruit.

Last year, the ITFA Fintech committee launched two major projects: the Digital Negotiable Instruments (DNI) Initiative and the Trade Finance Distribution (TFD) Initiative, both of which are gaining traction.

The tokenization of trade finance: a backcasting exercise

“We really see this theme of collaboration amongst fintechs being applied here, and the banks will benefit,” said Casterman. 

“That’s the ultimate goal: for the banks to benefit from those enhanced value propositions, and for their clients to indirectly benefit from those.”

Trust and other challenges

Another major challenge for digitisation, as Casterman sees it, is the reluctance of fintechs to work together.

He points out that fintechs don’t necessarily have to work together on an exclusive basis as partners, but instead, can work together to plug into existing business, legal, and technology landscapes simultaneously.

“There are many opportunities,” said Casterman. “But it’s not obvious to get to a point where two companies say yes, let’s go together, and build this enhanced value proposition’, because there is a temptation from some large players to believe they can do it all by themselves.”

Podcast: Electronic Documents and English Law: the roadmap to digital trade documents

Policy playing catch-up

Typically, advances in technology far outpace changes in regulatory frameworks, and this can clearly be seen in the hindering of banks that want to dive deeper into fintech.

For tradetech, similar problems have emerged with regard to the legal acceptance of electronic signatures in trade documents.

Casterman calls this dilemma the clash of the “policy track” and the “technology track”. 

“The technology track is often very advanced – it’s ready – and the technology vendors are keen to power some banks to make it happen,” he said. 

“Now the banks are looking at the legal side, policy side, regulatory side, and sometimes they have to wait – particularly for negotiable instruments.” 

Casterman said the ITFA Fintech Committee is keen to get electronic trade documents recognised under English law for products such as electronic negotiable instruments, Bills of Exchange, promissory notes, and Bills of Lading.

For now, however, the idea is pending a parliamentary decision, which should hopefully be delivered in 2022.

Helping SMEs directly

The move toward digitised transferable records is hoped to be popular among small- and medium-sized enterprises, whether under common law or contract law.  

“SME clients will go for it, as long as they get working capital,” said Casterman. 

“Whether it’s a Bill of Exchange that is transferrable, or, under contract law, and not so transferrable, but still enforceable for the founder, it is not as important.” 

In 2020 ITFA recently, developed the electronic payment undertaking (ePU) to provide a solution for trade finance originators who want to digitise negotiable instruments on the basis of contract law.

“It’s still enforceable, but it requires a specific contract. And, within the ePU, we provide a template for this to take place, on the basis of the Enigio technology that is the same one that would be used for the common law solution,” said Casterman.

One for the bankers

In all his work for the ITFA Fintech Committee, Casterman reminds his audience that fintechs are trying to help the banks, not hinder them.

His goal is to get the bankers “on stage”, as he said at the ITFA Annual Conference in Bristol this month, and to make them see the same value proposition that he sees in electronic transferrable records.

“I want bankers on stage talking about their implementations, talking in their own words about the value propositions they have been able to develop,” said Casterman.

“We really want to make sure we deliver what we want to deliver to the banks, so they can deliver to their clients,” he added.

The post VIDEO: The F Word – ITFA’s Andre Casterman on helping banks and fintechs work together appeared first on Trade Finance Global.

How do fintechs work with banks, and how can we rethink the customer journey for trade finance? TFG partnered up with Finastra to discuss how fintechs and banks collaborate, how the onboarding process works, and the advantages fintechs can offer to the end corporate client. A TFG exclusive, filmed at Finastra’s offices, with Merisa Lee Gimpel, Head Trade Innovation, GTB, Lloyds Banking Group and Andre Casterman, ITFA Board Member, Chair of the ITFA Fintech Committee.

Featuring: Andre Casterman, ITFA Board Member and Chair of the ITFA Fintech Committee, ITFA

Merisa Lee Gimpel, Director, Head of Trade Innovation, Global Transaction Banking, Lloyds Banking Group

Host: Deepesh Patel, Editor, Trade Finance Global

Are banks opening up to fintech collaboration and do you see a future for fintech-to-fintech collaboration?

Andre Casterman: There is an intensifying collaboration between incumbent financial institutions and fintechs and I believe this trend is here to stay. We see already short term results from this collaboration. This is coming from the fact that basically fintechs are very specialised, they are coming with value propositions that are addressing very specific pain points. They are not trying to change the way the back office runs. They are trying to add capabilities to look the back office, add capabilities to the front office and working with those players like financial institution’s back office vendors and channels, that are in place. And this preparation extends beyond the bank fintechs relationship it goes into the technology and relationship where niche fintech players highly specialised, as I said, start collaborating with the large trade finance vendors like Finastra, and that is again to address very specific pain points, such as document checking, which is key in the back office function. And again, the technology integrates nicely with the tools that operations teams use today. Another example of fintech-fintech collaboration is where new technology players like those on the document technology, like Enigio Time, start working with funding platforms to digitise promissory notes and bills of exchange. So this is all very good for the whole market. And definitely, we’re going to see more and more results in the next 12 to 18 months

Merisa Lee Gimpel: At Lloyds Bank, we launched a survey very recently asking the top 100 leaders in the financial institutions space – if you were to work with fintechs, what would you say your number one challenge is – and the word interoperability came up. So that is really the biggest challenge we would love to work with fintechs to answer very niche, unique pain points, the challenge and the question is how do we integrate that into our existing infrastructure on the technology side, and that’s something that we would love to collaborate and work on.

Andre Casterman: Exactly. That’s where API’s, data specifications, make it happen. We’ve seen at Sibos recently, how banks are embracing APIs for trade finance building on their experience on the payment side. And this is how also fintechs will collaborate with each other beyond the fintech integration in the bank’s back-office environment.

Fintechs and the ever changing expectations in trade finance

How do banks view fintechs, and how do you choose which ones to partner with?

Merisa Lee Gimpel: As we see trade undergoing massive disruption and change, a lot of it is powered by fintechs changing the way our clients are expecting things to get delivered. At Lloyds Bank, our mission is to ‘Help Britain Trade’, and as part of that, we put our customer needs at the centre of it all. And we’re very open to partnerships, whether that’s with fintech or traditional tech companies or other banks, as long as it delivers value for customers. If it delivers value, then the question is not whether we should partner with a fintech, but how do we do so. And we are working closely with fintechs and also internally ourselves to make sure that we can bring relevant solutions quicker to market for our clients. And that includes things like looking into how we have a more nimble onboarding process as we work with partners like fintechs. We’re very proud to say that we continue to improve the onboarding process. We have been able to onboard a trade fintech in under two months, which is a massive kind of speed to market in this space.

Fintechs helping banks provide more value to corporates

What advantages do fintechs offer to financial institutions and their corporate clients?

Andre Casterman: The trade finance businesses is very established, very standardised. So for financial institutions to differentiate, it’s all about depth and breadth of services, combining trade services with payment services with FX services. Now, what is happening with technology is that and with particular fintech players, indeed, is that some processes that are still very manual, very paper-based and not automated, for those reasons are going more and more through a digitization journey. Even if the LC is still initiated on paper, the trade back-office people within financial institutions can rely on technology to digitise the documents and to apply the ICC rules on the documents. That’s document checking technology offered, for instance by Traydstream and that is accelerating the bank’s operations and helping the corporates reduce their day sales outstanding because they’re getting paid faster by the bank when older documents are checked. Another benefit for corporates is to use platforms where they can find new financing providers, new funders for their activities. So I think all of those fintech trends are addressing the outstanding pain points of paper, of lack of digitization, lack of automation, and bringing actually the very latest technologies and I’m thinking about using transaction data, historic data, as well as machine learning in order to automate and accelerate those processes.

Merisa Lee Gimpel: And at Lloyds Bank, we put the customer at the centre of it all. So we put the customer at the centre of our design journey. It has to be always about the customers’ biggest pain points. And when we talk about customers, we’re not talking about inanimate corporations. Even in the commercial banking space, customers are humans. And humans have fears. They have wishes. They have pain points, irritations, and they have moments of joy. And that’s what we bring into our innovation space. So we’re constantly talking to our clients trying to understand their needs, constantly getting validation or invalidation on our trade innovation projects. Because at the end of the day, I think our CEO says it really well. Antonio, he says: we want machines to do the ordinary so that humans can do the extraordinary. And those humans are the people, our colleagues working at Lloyds Bank in Trade, and those humans are our clients as well. So we definitely look forward to what technology can give and deliver, but always to empower humans, whether it’s the human experience, or making things simpler, more secure, and on the timelines that our customers want it so not everything has to be quick. And if technology can deliver that then all the better.

Addressing the specific pain points

How closely do you (as a bank) collaborate with your corporate customers in the area of innovation?

If a corporate comes to us at Lloyds Bank and says I want to work with this fintech, how do we approach it? We always value what our customers are asking for. And we will go back to what is the challenge that our customer needs to get fixed, and we see that in the channels space. So if they say “we want to work with this provider because it helps solve X Y Z need” we’ll definitely listen to them. And we prioritise our innovation projects based on customer needs and customer demand. In most cases, the majority of the fintechs I speak with are answering very niche needs, so we don’t have our corporate clients saying: yes, Merisa, we want you to work with this fintech or that fintech. We have to unbundle it and look at what is the “hair on fire” or the big pain point that these fintechs are addressing. And we match it to the pain points that our customers have expressed that they have, whether that is they want to deal more securely, whether that is they want to eliminate all that paperwork and manual processing, in how they issue letters of credit, for example, and we match that with the right fintech for that solution. That’s how we prioritise. So when I talk to fintechs, there are two things I asked them: what is the hair on fire problem (pain point) that you’re trying to solve for my clients. And number two, what about your solution stands you apart from the alternatives? And because this is a rather new space, the alternatives might not be just another fintech. It definitely could be the current way of doing things, which is well, it’s paper, we’re going to use paper, we’re going to go back to that comfort zone of working how we’ve always done trade finance for hundreds of years. And we need them to give a very compelling reason how their solution helps us move away from that and convince our clients – give value to our clients – so that they also move away from the current way of doing things.

The post VIDEO: Rethinking the customer journey for trade finance – fintech and bank collaboration appeared first on Trade Finance Global.