GTR and BNY Mellon gathered a group of Spanish transaction bankers in Madrid to discuss the evolution of the trade and payments industry.
- José María Abella, head and director, international financial institutions, Banco Popular
- Monika Aminiova, EMEA market manager, BNY Mellon Treasury Services
- Montserrat Arnaiz, senior relationship manager, global GTB sales – financial institutions, Santander
- Mauro Bonacina, global trade market manager, BNY Mellon Treasury Services
- Gerardo Fumagalli, relationship officer developed market EMEA, BNY Mellon Treasury Services
- Alfonso González Díaz-Carralero, head of international financial institutions and correspondent Banking, Bankia
- Shannon Manders, editor, GTR (chair)
- Juan Pablo Vargas Casaseca, head of trade finance and correspondent banking, Abanca
GTR: The global financial crisis, European debt levels and the slowdown in China are just some of the recent obstacles to hit global trade. What impact has the turbulent geopolitical landscape and global and local economic uncertainty had on Spain’s trade business?
Arnaiz: With regards to Spanish companies, what we have experienced is that despite the EU financial crisis, the countries of the eurozone continue to be Spain’s main trading partners, although the number of transactions into other countries from outside the European area is starting to increase. As per our figures, the areas where we have registered the biggest increase are Latin America, mainly Chile and Mexico; North America, especially Canada, where many Spanish companies are participating in many infrastructure projects; the Middle East and Africa, specifically Egypt and South Africa; and Asia, particularly South Korea.
As a result of the crisis, more and more companies in Spain have started to export due to a slowdown in internal demand.
González Díaz-Carralero: It is true that there is promise in some countries in Latin America, such as Colombia, Mexico, Peru, Chile and even Argentina. There are also opportunities in the north of Africa in the Maghreb region. But we have seen a general slowdown in activity: even in the Middle East it is difficult to see new projects or trade flows from our customers.
On the other hand, Africa is one of the big surprises in recent years. We are finding new, good opportunities on the continent.
Vargas Casaseca: In spite of the official message that foreign trade is the solution to the crisis because domestic Spanish demand is saturated, we see that the global crisis has slowed foreign trade, and banks and corporates are a little more cautious because this lack of stability prevents them from taking decisions in terms of platforms, systems, staff and expertise.
But in spite of this, I would say that there is room for an optimistic approach because crises in key countries such as China, Brazil and Russia are more cyclical
So in a few years, everything will come back to normal, and this will have a positive impact on our exports. Because of the fall in oil prices we are watching very carefully countries which are dependent on this commodity, because there is now a downturn in those countries.
GTR: Going back to Latin America, why is there not more co-operation between the region and Spain? With regards to the reopening of Cuba for business: is this going to have any impact on the trade you do with the country?
Vargas Casaseca: When it comes to Latin America, there is a complex situation which is a mixture of many factors that are intertwined and interrelated. First of all, there have to be underlying transactions going there, and it seems that there are less volume and flows of Spanish goods than what might be expected, although I would say that I have seen important growth in Mexico, to offset the slowdown of Brazil. In Colombia and Chile as well.
Having said that, risk factors are involved: such as lack of expertise in Latin American banks when it comes to foreign trade, unlike Asian banks which have 30 or 40 years of experience.
So it’s reflective of the lack of expertise, the risk profile of the bank, and the lack of underlying transactions, and, of course, the macroeconomic conditions of those countries. But there is a lot of room for growth, and I think this is the direction that the Spanish exporters have taken. Latin America should be the backbone of our strategy.
Fumagalli: Cuba is making significant progress: generally speaking, even the US is looking at the country in a favourable way. We think a good number of commercial transactions can be processed even through a US institution based on the fact that no US institutions are directly involved. That’s why we think that Cuba could be one of the booming countries for 2016 and for the short and medium term.
Vargas Casaseca: I would agree with that. The Spanish ECA, CESCE, has full coverage for transactions of less than one year, which is a major boost to Spanish exporters doing business there. In spite of this, I think that a lot of bankers are still cautious, and are waiting to see major developments, but the homework has been done.
GTR: Let’s move on to the crux of the topic which is access to trade finance. With all of these new markets and trade flows in mind, how are your clients’ needs evolving? And how are banks facilitating business as these developments occur?
Vargas Casaseca: With this artificial money supply that we are seeing, you would think that providing trade finance would be very easy because banks have plenty of liquidity. But corporates do not have the confidence that this liquidity is for real: they invest in the short term, such as in the stock exchange or in bonds. They have a lack of confidence in the global political situation. That prevents them from taking investment decisions when it comes to trade finance, investing in platforms, investing in personnel, in these kinds of things.
Arnaiz: New players are emerging in the trade finance business. In addition to fintechs with new platforms and financing solutions, new funding sources have emerged, such as pension funds and institutional investors, who are looking for opportunities to maximise their investments, trade finance being a sound and profitable business for the time being. This is encouraging banks to evolve their offering and services to meet new customer requirements and behaviour.
Aminiova: We are working with a number of those companies that are becoming more active in the supply chain market and are keen to increase their market presence. They are typically agile and once they screen the buyer and seller, they are able to very quickly approve the transaction for financing, usually linking the risk to the buyer. They are quite selective in what markets they would like to operate in and which client sector they would like to target, so although they do not have regional or global ambitions at the moment, they are picking up the niche market clients.
GTR: In terms of the demand for trade finance, is that the same as usual? What have been the new trends in terms of demand for trade finance products?
Vargas Casaseca: Swift statistics this year show an increase in open account transfers year on year. In spite of this I am very bullish on trade finance products because they provide transparency and you are able to track all the transactions in the overall chain.
In our case, because our profile as a bank is different, we don’t see a huge demand for new products, but I think in general terms this will be very important in the future, rather than the traditional trade finance products.
We don’t see a huge demand for new products, but I think in general terms this will be very important in the future, rather than the traditional trade finance products. Juan Pablo Vargas Casaseca, Abanca
Arnaiz: The success of the bank payment obligation (BPO) and whether it is going to move forward is not yet clear. On the other hand, an increasing number
of clients are demanding supply chain solutions.
GTR: How important is it for banks to be innovative in this space?
Bonacina: I think that the biggest gap is when SME funding comes into play. The largest portion of rejected applications are those from small and medium enterprises, which still today represent in most countries the backbone of the economy, so that has to be addressed. And one of the ways to address that point in addition to balance sheet analysis, as well as transactional analysis through big data, is via new technology.
GTR: Do you think that Spanish banks are equipped to deal with the greater demand for innovation? How are you dealing with new trends towards digitisation?
Arnaiz: It is a reality that a new source of innovation in financial services has emerged in payments and trade finance. Banks are partnering up with the fintechs in order to move forward and to streamline the processes.
Abella: It is clear that everybody is starting to be more competitive in technological matters. It is a way to be closer to the customers, and so we have to follow their evolution. But we must not forget that customers also need proximity. We need to be close to them and branches need to be there as well. It is a mix of both technology and branches for the future.
Bonacina: This is what we do: we partner with competitors at times, with clients and providers, we call it co-opetition rather than competition, it is more oriented towards co-operation, with the fintechs, as well as participating in consortiums such as R3.
We strongly believe in companies and banks having to focus on what is the core business to them, meaning that probably being closer to the end clients is absolutely core to a commercial bank, but for us it’s not.
GTR: We have talked about what global banks are doing in the market, but I’d like to hear about some of the conversations you are having with local customers here in Spain in terms of alternative finance, the advent of fintechs and innovation. Are they receptive to this form of lending? Are they threatening to look elsewhere?
Vargas Casaseca: In our case I would say that is a threat that we haven’t experienced whatsoever. Maybe again because the majority of our customers are SMEs or midcaps, but we don’t see that phenomenon.
GTR: Do you think that there is enough access to finance for Spanish SMEs?
Vargas Casaseca: Five years ago there wasn’t any liquidity for customers or banks. Now with the ECB’s QE programme there is plenty of liquidity. Liquidity is not an issue any more in Spain. Not for banks and not for customers. In our case, we are not seeing big problems from our SMEs.
Abella: Banco Popular specialises in SMEs and we are still increasing our numbers in SMEs.
GTR: What are the demands for trade processing and how have these have evolved?
Arnaiz: Banks need to internalise digitalisation in the trade processes to reduce the current manual work involved in the trade business. In the current environment of cost reductions, de-risking, AML processes and so on, banks need to set up more accurate processes.
Bonacina: Again, in the frame of a more enhanced and harmonised legal framework because today there are still too many different jurisdictions and regulations. It is not only about the banking regulations, because when trade is concerned, there are logistics players, there are customs laws to respect, many customs today still require the physical documents; how do you digitalise that? How do you get the benefit from the digital bill of lading if the physical bill of lading is still required to clear customs? And again, it is one thing if we refer to developed markets and major players. It is another altogether when we instead look at smaller companies.
GTR: In what ways do regulations such as Basel III and reporting requirements offer both challenges and opportunities to the Spanish banking community? How are banks such as yours adapting to changing regulatory requirements?
Abella: We see regulation as an opportunity and a barrier and as both at the same time. Those who can manage them properly will succeed. It is something that we have to do.
Vargas Casaseca: It is inevitable. I would say that it was created to make trade more safe and robust but in reality it is more risky and more costly because the cost of doing something wrong is high. I have seen that many banks prefer to consolidate the correspondent banking network and it has had a negative impact on banks, including in our case. So there is an upside in that it makes everything clear and transparent and safe, but the downside is there as well. You have to create internal controls and procedures, and everything is very costly. There are many risks.
In future, banks may need to renegotiate existing correspondent contracts to ensure more clarity about pricing and fees. Monika Aminiova, BNY Mellon
Aminiova: I would also like to pick up on one particular component of PSD 2 which I think is influencing payment processing in relation to trade. And that is the requirement which covers one leg out transactions in all currencies outside of the EEA.
Currently, PSD 1, which is already in place, focuses on payments within the EEA. There are certain regulatory requirements, so each payment within this region needs to be processed as D+1 and the charges need to be indicated as SHA (shared) without any correspondent fee deductions permitted. And now PSD 2 is extending that to payments out of the EEA region. As we understand it, but still to be confirmed, one requirement for banks is that they will have to inform the customer in advance about the fees that will be applied by all banks in the chain as well as the expected value date. Today, whilst banks are informing the customer there might be correspondent fees, in future more clarity will be required in this area. Therefore, banks may need to renegotiate existing correspondent contracts to ensure more clarity about pricing and fees. It would be interesting to hear how Spanish banks are looking into this topic and how they are getting ready for PSD 2 because at the moment the market is interpreting this slightly differently across the region.
Arnaiz: We still have to wait for the national transposition of the directive. We do not think there are going to be many changes, but, as with PSD 1, some modifications might be introduced.
It is going to be challenging in regards to the entrance of third-party providers (APIs), for example. Banks have to take advantage of the long-standing relationship between themselves and the trust customers have on banks as service providers. We at Santander are taking part in some initiatives, such as the Global Public Inclusive Infrastructure (GPII).
Abella: What about conversion? The currency conversion of the payments is something happening in the market, so transparency perhaps also for the future in the currency conversion of the payments is something that needs to be solved for the future, including the fees.
González Díaz-Carralero: However, entities who used to be very active in payments conversion have recently decided to stop doing it. It might be due to new regulations or any other reason, but they have stepped aside.
Aminiova: There is the SWIFT global payment innovation initiative in which they would like to help banks bring more transparency, speed and effective end-to-end tracking to payment processing. There are 70 banks taking part in this initiative and at least 20 banks will be piloting the system in the fourth quarter of this year. SWIFT would like to help banks monitor the payments online from beginning to end, using a unique identifier code. Each participating bank will also have to sign an SLA.
GTR: The next topic on the agenda is SEPA: how can the harmonisation brought by SEPA be leveraged to continue to improve European banking standards?
Aminiova: With SEPA, it is well recognised that SEPA payments have already been adopted in the market. There is a new SEPA instant payment development which is going to be launched in 2017. SEPA instant payment will allow online euro payment processing within the eurozone. It is expected to be very similar in operation to the Faster Payments model in the UK. In my opinion, for the banks doing business in Europe, this is an essential payment type, even though it would be more relevant for C2C or C2B transactions than for trade-related flows.
Arnaiz: Clearly instant payments is becoming a reality, but the banking industry should work towards better standardisation.
The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.