Recognition of the potential value fintech could present is creating a growing fervour throughout the banking industry. Mauro Bonacina, trade market manager, Treasury Services at BNY Mellon, speaks to GTR about how fintech developments are unfolding, and how fintech’s growing reach is impacting the trade arena.
GTR: How is the fintech innovation landscape evolving?
Bonacina: Financial technology (or fintech) is going from strength to strength. A growing number of companies – including banks – are looking to explore and leverage fintech capabilities and, subsequently, investment into the sector has surged. Global levels increased by 300% between 2013 and 2014 to reach US$12bn – up from just US$2bn five years ago.
Fintech is also expanding geographically. London, Silicon Valley and New York are already established innovation hubs, and many cities across the globe are in hot pursuit of such status, keen to be seen as vibrant centres for innovation. In Europe, for example, Amsterdam, Berlin, Dublin, Paris and Stockholm have all been identified as key growth areas for fintech. Elsewhere, Hong Kong and Singapore are leading the way in Asia, while Tel Aviv has a thriving fintech community; home to a growing number of initiatives, including accelerator programmes and hackathons.
GTR: Fintech has certainly had a significant impact on how we make retail payments. Will fintech also begin to alter the way in which corporate payments are made?
Bonacina: That’s right; the impact so far has largely been felt in the retail and consumer space (with the introduction of real-time and mobile payments making transactions far more flexible and in line with today’s 24/7 digital-fuelled lifestyles), but the corporate sector is now poised for fintech to really make its presence felt in the corporate payments sphere – possibly redefining the world of payments as we know it. Corporate clients won’t be prepared to accept the disparity in terms of technology capabilities between their personal and business payments for long – nor should they. Certainly, the potential to upgrade and enhance the corporate payments experience is very much there, and it’s largely accepted that it is a case of not “if” but “when” the effect of fintech truly begins to take hold in this respect.
GTR: The trade arena has been historically somewhat reluctant to accept industry change through technological innovation. Has there been any change in this respect?
Bonacina: The trading space has always been regarded as slow when it comes to embracing and adopting new innovations. Its traditional approach and values mean there can be a reluctance to interfere with ingrained processes, which makes it extremely difficult for innovators to make headway and launch successful solutions. The introduction of a set of industry practices – the electronic Uniform Customs and Practice (eUCP) – by the International Chamber of Commerce (ICC) has been a pivotal development in helping to overcome some of the many obstacles faced by innovators bringing new products to market.
But overall, the relationship between fintech and the trade sector is growing warmer, with the trading industry now more receptive to change than it has ever been before. Don’t get me wrong; adoption of new innovations is still slow. But the trade arena is far more receptive to developments and more inclined to accept new solutions – particularly those that contribute to the bottom line – than it was just a few years ago. The rate of innovation occurring throughout financial services is astonishing, and even the trade sector can’t remain completely immune to its advances.
GTR: How is technology innovation impacting the trade sector?
Bonacina: While the trade sector cannot be described as “hungry” for innovation, there is certainly a growing demand for solutions that offer streamlined processes, increased efficiency and reduced working capital costs – and a clear industry trend emerging is that of “going digital”. Fuelled by technology that enables real-time access to data, as well as enhanced visibility and traceability of documents and flows, clients are increasingly understanding the value of digitising the supply chain. Trade is therefore evolving towards an automated, paperless environment (although this process – as expected – is still rather slow).
Document examination is a key area in which this is being explored. Optical Character Recognition (OCR) – which converts scanned images of both typed and handwritten text into electronically readable, machine-encoded text, subsequently enabling relevant data to be extracted and matched to a database – is set to be the next “big thing” in this respect. Certainly, it has the potential to alter the nature of trade, not only radically reducing manual involvement and the risk of human error, but increasing speed and efficiency. While OCR capabilities are technically already available, they aren’t yet reliable enough to be widely adopted. Furthermore, a number of legal requirements and compliance complexities also need to be “ironed out” before it can unleash its full potential.
But it is only a matter of time before OCR becomes common practice. Moreover, “big data” has been recognised as an area of fintech innovation that could bring significant added value to the banking sector – and its clients – if leveraged to its full potential. Indeed, banks’ systems are rich with data and equipped with technology capabilities that now allow such reams of complex information to be effectively, efficiently analysed and interpreted, meaning banks can identify and capitalise upon previously unidentified trends and behavioural patterns. This “smart data” technique can be used, for example, to gain valuable insights into trading patterns and payment performance, which in turn can be used to enhance both the physical and financial supply chain. For instance, through its ability to considerably enhance the transparency and efficiency of data and data management, big data could help to speed up the funding decision process involved in supply chain finance, which is currently calculated based upon management information documentation.
By gaining a greater understanding of clients’ overall business, banks can optimise their internal processes and tailor their client service and solutions based on individual client needs. Banks can also extend these enhanced data management capabilities directly to clients, who can benefit from greater insights into spending patterns, cashflow forecasts and processing errors (which can be subsequently addressed to help generate cost savings).
GTR: How is the banking sector responding to fintech’s growing presence? Are fintech companies being regarded as a threat or are
they creating an opportunity?
Bonacina: Banks have always been hugely committed to investing in technology to improve their client offerings – certainly, banks are not averse to technology advancements in any way. Yet with innovation being driven to such an extent by fintech-focused new entrants, and with developments occurring at such a rapid rate, banks are facing an unfamiliar, challenging environment; one that requires an uncharacteristically deft, agile response if they are to keep up with not only the fast pace of change but the potential degree of change. Banks are aware of the very real possibility that fintech advancements could radically change the payments scene. And as the longstanding providers of payments, with unrivalled experience and knowledge of the industry, banks need to spearhead the move towards the digital transformation of transactions; they cannot afford to step back and be superseded by technology-driven newcomers.
Yet without the same tech know-how and creative freedom to innovate as new entrants, it can be difficult for banks to advance the payments business alone. For this reason, more and more banks are partnering with fintech companies, pooling vital expertise from both parties to help propel the launch of digital developments in the corporate space. Indeed, it is becoming increasingly understood that it is this marrying of skillsets that could really kick-start the beginning of a digital transformation in corporate payments. Banks are exploring these allegiances through a number of approaches, including venture capital-style investment and accelerator programmes, where the relationship with banks ranges from partner-sponsor to more active ownership structures.
An area that has sparked particular interest as a potential “corporate payment game changer” is blockchain; the ledger technology that currently lies behind bitcoin. This is a cryptographically secured, distributed ledger that records each transaction or exchange. Not only are transactions transparent and accessible by all computers on the network, they are also irrevocable. A great deal of activity is currently in progress, with banks (such as BNY Mellon) and fintech companies exploring together the properties of the blockchain and how they can be applied to the corporate payments business, including looking at ways to leverage the blockchain to enhance the efficiency and risk management of the trade business.
While fintech hasn’t yet truly made its mark on the corporate sector, it has the ability to radically alter the very nature of financial services. The banking community is very much awake to the potential it holds and together with fintechs, are working on ways to launch a whole new era of digital payments. Watch this space.