Corporates are investing in innovative digital solutions that bring greater automation and efficiency to their payment and trade finance activities. Many of them expect their banking partners to do likewise, but are banks up to the job? Liz Salecka investigates.


From e-invoicing and e-payments to e-trade documentation, digitisation is sweeping across the corporate community as companies look to embrace the latest technologies.

Increasingly, they are looking to deploy innovative solutions that automate their payment and trade finance processes, thereby speeding up transaction times, securing greater efficiency, reducing operational costs, and ultimately enabling them to optimise their working capital.
Moreover, there is a growing emphasis on fully automating transactions with third-party partners – the buyers and suppliers they work with, as well as their banking partners.

“The pressure is definitely coming from the corporates. They are looking to reduce costs, achieve greater efficiency, process everything in an automated way and also secure greater visibility,” says Kitt Carswell, vice-president and senior offering manager, trade and supply chain solutions at CGI. “While many large corporates already have their own sophisticated digital platforms, this movement is now going further downstream as digital solutions become more affordable for smaller companies.”

“What we are seeing is the democratisation of technology,” confirms Bernd Richter, partner, capital markets and banking at Capco. “There is now a much wider market that can adopt these technologies – it is not just open to the largest corporates.”

He explains that of the costs most companies face in the finance function, the biggest are in administration overheads – so there are huge benefits in reducing the cost of administration in areas such as the management of payables and receivables.

“Digitisation gives corporates the opportunity to automate the entire process. It also improves the cash conversion cycle, and helps them optimise liquidity,” he says.


Trade finance goes digital

While the corporate movement towards digitisation started in the payments space, today digital solutions are being increasingly sought for trade finance activities.

“The dematerialisation of trade documents from e-invoices to e-bills of lading to e-purchase orders is becoming more common place,” says David Hennah, head of trade finance at Misys, pointing out that corporates are looking to achieve economies of scale and increased process efficiency. “The complexity of data today make investment in digitised channels a must.”

Meanwhile, Percy Batliwalla, managing director and global head of trade and supply chain finance at Bank of America Merrill Lynch (BofAML), identifies payment processing and trade as two areas where there continues to be innovation and new solutions.

“While corporates are increasingly embracing new technologies around the payment space, many are evaluating and implementing options like e-invoicing, e-presentations and digital solutions for trade,” he says.

This, he notes, is as much the case in Asia as it is in western economies: “In several Asian countries, there is a reliance on paper-based processes for trade. However, markets are looking to move towards electronic solutions for both payments and trade,” he says. “In some markets, there is an opportunity to leverage technology to leapfrog legacy paper-based platforms and processes.”

At Deutsche Bank, Daniel Schmand, head of trade finance and cash management corporates, Emea, also recognises a bigger movement among corporates towards the use of digital solutions in trade finance. “This is happening where there is volume and scalability – most notably in open account financing where you are dealing with hundreds of invoices,” he says.

Here, he envisages that the greatest potential lies in the full automation of the invoice to payment process, with e-invoices held in a corporate’s Enterprise Resource Planning (ERP) system moving electronically through the entire payments cycle to generate an e-payment by the bank or trigger the provision of early receivables financing.

“The changes that digitisation bring must be in the end-to-end value chain. Within any organisation, a process must by fully automated without any disruptions or breaks to achieve internal efficiency,” he says. “The key goal must be to achieve straight-through processing (STP), and the benefits of this to the corporate are very obvious: reduced costs and improved efficiency.”

He adds that the next stage is to deliver digital information to partner organisations to ensure greater efficiencies. “There is a huge value-add to banks to receive an e-invoice that triggers an e-payment and/or the provision of early financing.”


Focus on e-documentation

Emerging e-trade finance solutions such as the bank payment obligation (BPO), a payment guarantee and risk mitigation instrument that performs a similar function to a letter of credit, and e-documentation solutions such as the e-bill of lading are also now finding increased traction among the corporate community.

Hennah recognises that market adoption of Swift initiatives such as MT798 for traditional trade and the BPO have been slow so far, but adds that interest is growing among corporates.

He also identifies scope for combined e-bill of lading and BPO transactions: “This brings together two digitised concepts that individually may have enjoyed limited success to date, but combined together present a rather more compelling value proposition,” he says.

Earlier this year, paperless trade solutions provider essDOCS announced completion of the first ever CargoDocs BPO Plus (BPO+) trade finance transaction involving global resources company BHP Billiton as the seller, Westpac as the recipient bank, ANZ as the obligor bank and Cargill as the buyer.

It was the first ever BPO transaction in which data flowed through all four corners of the model without requiring any re-entry.
The essDOCs out-of-a-box solution combined the BPO with essDOCS’ CargoDocs DocPrep, which is used to draft or collaboratively draft all the documents required for global trade in paper and/or e-format, and eDoc Exchange, which can then be deployed to present the e-docs to banks and other third parties.

Alex Goulandris, CEO of essDOCS, identifies three main benefits of CargoDocs:

Automation: Data does not have to be re-entered, reducing the possibility of errors;
Reduced compliance risks: The ability to deal more effectively with requirements such as know your customer and anti-money laundering.
Improved financial and logistics operations: Logistics are faster if there is no requirement to wait for paper documents.

“The idea behind CargoDocs is to be able to handle all the e-documentation required for international trade to improve the whole process,” he says.


Challenges to digitisation

Despite these benefits, corporates’ adoption of digital solutions is not always a straightforward task, and there are a number of considerations to take into account including ensuring they invest in the most appropriate and futureproof solutions, speed of implementation, and the possibility of resistance to change.

“While industry innovation represents an opportunity to the treasurer to improve efficiencies and lower costs, corporates have to evaluate each solution based on their own requirements and objectives,” says Batliwalla, pointing out that BofAML is in constant discussion with its clients on new payment and trade solutions. “A cost/complexity versus benefit analysis is critical to ensure the right technology is appropriately leveraged.”

Similarly, Goulandris recognises that making the right digital solution investment decisions can prove tricky.

“One issue that can arise relates to the availability of different formats. There may be two different platforms, leaving the corporate unsure as to which one to adopt. It may choose to adopt both but for smaller and medium-sized firms this can prove costly,” he says. “There can also be issues in relation to change management. When you are moving from paper to electronic processes, people will need retraining – and there has to be a proper widespread commitment to the solution being adopted. Much of this relates to the age and attitude question. Unless they are technologically savvy, personnel may prefer to stay with paper.”

Schmand also recognises that several issues need to be addressed.

“The more straightforward an organisation’s internal processes are, the easier it is to digitalise them. The more complex processes are, the more complex it will be to electrify them,” he says.

“An organisation may experience resistance to change – but digitisation will happen. The question most corporates must ask themselves is when should this happen. They do not want to miss the boat, but at the same time there is a risk in being a frontrunner.”


Can banks go digital?

Whereas much of the drive to adopt digital solutions for payments and trade finance is coming from larger corporates, many companies are now placing greater demands on their banking partners to offer more in this space.

“There is a double-sided approach here. Corporates are adopting these solutions themselves but we are also increasingly seeing them try to persuade their banks to adopt new digital solutions. Once banks start using digital solutions, they can then offer them to a wider corporate client base,” says Goulandris at essDOCS.

However, Hennah at Misys recognises that banks can face an uphill struggle when investing in the latest digital technologies:
“It is sometimes difficult for banks to obtain the necessary budget approvals to invest in the modernisation of traditional trade finance systems, even though this remains the bread and butter of their trade business,” he says.

“Bank now face a huge problem today in relation to their IT investment,” adds CGI’s Carswell. “About 60% of investment is going into solutions for compliance, and regulatory changes are happening on an ongoing basis. Some banks are trying to be innovative, but compliance is placing a huge strain on their resources.”

But there is a glimmer of hope on the horizon. Many market observers anticipate that banks will harness new digital opportunities in payments and trade finance by collaborating with a growing wave of digital financial solution providers – fintechs.

Carswell envisages a positive future for collaborations between fintechs and banks. “As a general rule, fintechs face issues in that they are small and not that well established, and so there is an initial credibility factor to bear in mind,” he says pointing out that fintechs also need to generate funding.

“Banks and fintechs can work very well together. A partnership approach with banks gives fintechs more credibility.”

“Fintechs have emerged, taking on the digital revolution and forming new technology assets and business models,” adds Capco’s Richter, pointing out that some leading transaction banks are already working in collaboration with fintechs with a view to harnessing the solutions developed.

“Corporates want these digital solutions and banks see them as a way of adding value. Fintechs have ideas and can do things very quickly – even within a matter of months. Banks cannot keep up with this and need to collaborate with fintechs to bring them to the next competitive level.”

“Fintechs, meanwhile, are looking to gain access to corporate customers and many are using bank networks to achieve this.”

Goulandris also recognises greater scope for collaboration. “Some banks are providing liquidity to platform-based providers of alternative finance as this provides a way of getting some margins from a sector they have less exposure to. Then, there are banks that want to play a role in pioneering new technologies by providing venture capital to fintech companies. The fintech companies themselves meanwhile are working with banks to gain access to corporate clients.”

essDOCS itself is now working with 22 bank groups and this number is expected to grow to 40 by the end of the year. “CargoDocs is a trade enabler – it enables banks to give their customers a better experience. When a third-party provider offers an enabler, banks are most likely
to support it as it is not a threat to their own business models.”

Deutsche Bank is one bank that is maintaining a strong commitment to investment in digital solutions – and it is looking to collaborate with fintechs.

As part of its 2020 strategy, it plans to invest €1bn in its global transaction banking business and a further €1bn in digital solutions across the bank. The bank has recently announced plans to set up three innovation labs in London, Silicon Valley and Berlin to help it apply new technologies to enhance its products, services and processes. The aim is to strengthen the bank’s ability to innovate, while deepening
its relationships with technology start-ups.

It is already working in conjunction with fintech companies to develop “smart” solutions in areas such as payments, mobile and big data.
“Fintech companies bring value-adding technologies to the table. To be ready for the future, collaborations and partnerships with fintech companies will be critical,” says Schmand. “This is especially the case, given the pace and number of new solutions being developed and the speed of the technology cycle.”

He adds that Deutsche Bank is also keen to support and advise its corporate customers in their deployment of digital solutions.

“Digital solutions are not a core competency area for banks, which themselves are end-users of technologies. However, we can offer corporate clients assistance and support that creates a smoother process for everybody,” he says, pointing out that Deutsche Bank shares its experiences and case studies with corporate clients. “It makes sense for us to work with them on solutions that improve how they interface and connect into our systems.”