Adeline de Metz, Global Co-Head of Trade Finance at UniCredit and member of the recently established ITFA FinTech committee, looks back
at the trends that emerged in 2017 and takes a view on the year ahead.
Notably, there is a resurgent appetite for growth among banks, as they join
forces with other industry players to bring cutting-edge solutions to the
market in order to meet ever more demanding client needs.
With 2017 now behind
us, it’s time to reflect on
how the trade finance
industry has developed
over the past year, and to look ahead
to consider what 2018 has in store.
Firstly, there’s a real sense that banks
are redoubling their focus on growth
after a period of caution marked by
regulatory and compliance concerns such
as anti-money laundering and know-your customer
requirements. With this spirit
of growth returning, banks are actively
developing new solutions, a trend that
looks set to continue in 2018 – with
collaborative efforts featuring increasingly
prominently. Supply chain finance is one
area set to continue reaping the rewards
of industry co-operation – thereby helping
to mediate the growing number of trades
settled under open account terms –
while SMEs are also set to benefit from
upcoming blockchain advances.
Supply chain finance allays
open account concerns
The shift from traditional documentary
trade to open account transactions
continued unabated in 2017. Traditional
instruments such as letters of credit still
have their place, of course – particularly
for corporates trading in high-risk
geographies – yet the popularity of open
account for cross-border trade continues
to grow. Europe, for instance, sees 80%
of all cross-border transactions conducted
via open account. Despite the simplicity
and lower costs of open account trade,
however, increased counterparty risk and
reduced access to credit remain worries.
Supply chain finance programmes –
currently growing in popularity and
sophistication – help solve both problems.
Suppliers are not only guaranteed
payment, but are paid early, and they
can leverage the strong credit rating of
buyers to access credit at better rates
than before. There are also benefits
for buyers, particularly from a working
capital perspective – a good programme
can strengthen supply chains and supplier
relationships, while enabling the buyer
to improve Days Payable Outstanding
(DPO) by negotiating longer payment
terms. Buyer-funded programmes can
also represent a good use of surplus cash
in the current climate of negative rates.
The field is also innovating rapidly.
Buyer-centric solutions that are
usually reserved for larger businesses are now evolving to bring in smaller
buyers. Similarly, supply chain finance
programmes used to support just a few
of the largest suppliers, but solutions are
now on the market serving many more
suppliers, including smaller businesses,
across a wider range of geographies. Joint
supply chain finance solutions offered
by banks and fintechs are also set to
feature prominently in 2018. UniCredit
has worked with a number of fintechs
to offer innovative supply chain finance
solutions, ranging from digital portals that
auction approved supplier receivables,
to those that are able to quickly onboard
suppliers anywhere in the world. This is an important development, as problems
with supplier onboarding can often
limit the success of supply chain finance
programmes, with many suppliers put
off by a lack of automation and overly
complex documentation. As awareness
and availability of this kind of solution
grows, so will the number of supply chain
finance users.
Blockchain to boost European trade
In Europe, another way that banks
are looking to support corporates
with open account trade is we.trade,
previously known as Digital Trade Chain.
Developed by UniCredit in partnership
with seven other banks, we.trade is a
digital platform that uses distributed
ledger technology and smart contracts
to help European SMEs access trade
finance. The platform connects all trading
parties and registers the full, end-to end
trading process – making it fully
transparent. It is also fully automated
– accelerating the order-to-settlement
process – and should ultimately boost
trade throughout the continent.
Looking ahead to 2018, there is now
a roadmap for full deployment of the
platform. The first test will go live in
February, followed by full deployment in the summer, when UniCredit will
run a pilot in Italy and Germany. Given
this timeline, we.trade is set to be one of
the first commercially viable blockchain
solutions in the industry.
Industry collaboration fuelling
progress
The most promising solutions we are
seeing all have something in common:
they are the result of industry players
working together to solve client problems
at a new scale or level of sophistication.
Last year saw the “competition versus
collaboration” question debated almost
ad nauseam. Yet as we enter 2018, the question is largely settled, with bank fintech
collaboration emerging as a
valuable way to ensure client needs are
met in full.
Yet the manner in which banks and
fintechs collaborate is also important.
Rather than leaving corporates to search
independently for their fintech and bank
partners – which may raise issues around
funding and lead to clashes of approach –
banks and fintechs should work together
as part of a collaborative “ecosystem”
where both sides can ensure they can
co-operate from an operational point of
view. Working together and drawing on
past experiences, banks and fintechs can
proactively approach clients with ideas,
or involve them early in the development
of joint solutions in order to match their
requirements precisely.
UniCredit favours this collaborative
approach and we continue to monitor
the fintech landscape for opportunities.
Furthermore, we believe this culture of
co-operation may well be the dominant
theme of 2018. Shared resources,
complementary capabilities, and different
viewpoints all enable digital innovation
to be executed more effectively – creating
something bigger and better than one
organisation could working alone.
No comments:
Post a Comment