Technological advances are changing the world of financing. GTR gathered a group of experts to discuss how they are approaching innovation and embracing the future of trade.
- Alan Ainsbury, head of trade and international origination transaction services, NatWest
- Aleya Begum, Editor, GTR Europe (chair)
- Jim Bidwell, head of trade services product management, NatWest
- Teri Jamieson, research consultant – innovation and solutions, NatWest
- Lawrence Nichols, head of IT, UK Export Finance
- Edward Pikett, digital director, department for international trade (DIT)
- Ashley Skaanild, CCO, essDocs
GTR: What are the sorts of projects you are working on, and which technologies are involved in those projects?
Jamieson: It is hard to pick one technology. At RBS, we are researching a range of disruptive technologies. Augmented reality is a recent addition to our list, a virtual environment which has fantastic customer service opportunities associated with it. Quantum computing is another on our list, however it’s further away. Quantum is fast and complex mathematics that radically speeds up how we factor numbers and could have implications for a large range of use cases. We are also exploring blockchain, cloud, APIs, biometrics and cyber security.
These technologies in isolation are all disruptive in their own right. Convergence will bring radical transformation within any industry. The technologies that I think would be most important to trade are blockchain, APIs, cloud and data.
Pikett: I would say APIs from a data perspective. On the blockchain side of things, we are a bit further away generally. With blockchain, every time it seems to take a step forward, it takes two steps back. There is a lack of successful case studies of anyone who is turning it into something viable. Everybody is waiting for that.
From a customer service perspective, we work with Government Digital Service (GDS) particularly around export licences. We are doing a large piece of work on that now. We have about 5.5 million businesses in the UK. We have 450,000 on our books. And we have around 280 customer-facing advisors in England. There is no way that we can deal with that many businesses without bringing some sort of automation into the work that we do.
Bidwell: We have been a member of the R3 consortium since 2015. Trade is still a very paper-based business and is therefore a key area of focus for the consortium. We are one of the member banks involved in a proof of concept (PoC) looking at an electronic letter of credit (LC) using distributed ledger technology (DLT), which may in future phases explore the electronic presentation and title transfer of bills of lading, with companies such as essDocs.
Collaboration is the key to success here. We have to move away from banks developing proprietary solutions and expecting the market to adopt these. The bank is committed to being a thought leader in this space and we are participating in both the International Chamber of Commerce and the R3 working groups on the digitisation of trade.
Also, digitisation is not just about blockchain. Trade is still a paper-based world and so we are also working on other digital initiatives to make our customers’ lives simpler.
GTR: Digitisation isn’t something that is new, but it feels like something that needs a push in the sector. Has there been progress in the last few years, or have we still got a long way to go?
Skaanild: It’s all well and good that we are sitting here talking about blockchain, while a lot of corporates are not even sure where to start on digitisation. They may have grown by acquisition, have five accounting systems, six operating systems, several different disparate systems with data stored in all of them: a lot of it is conflicting data potentially. One of the places for them to start is at home – to create interoperability between their systems so that they know what they’re dealing with. That journey is one that has only started over the last couple of years. We’ve got 18,000 customers. Every single one of them has different ways that they want to be tackling digitisation.
At the end of the day, even if they have clean data in their systems, the next thing they may need to do is apply for a letter of credit. What do they do with that data? Nowadays most companies have to rekey everything one more time into a bank portal like RBS’. Once they’ve applied for an LC, their counterparty produces paper documents to satisfy that LC. This is where the automation ought to begin, but the banks get paper documents, and what do the banks do? A whole new digitisation effort has to start all over again, taking the data that is physically on those documents, and keying it into their compliance and credit checking systems, and then taking the letter of credit and comparing it physically.
Imagine if you could automate all of that. These are the kinds of things that we are starting to do. We can automate transmission of that data from the corporate system to the bank. Banks can check it against the letter of credit, automatically. The bank can gain title on our platform to the actual collateral document, which is the bill of lading, they can start to use data in their compliance checking systems, and one of our bank customers estimates that they can save US$50mn a year just doing that. That’s incredible.
GTR: What are the drivers for the corporates?
Ainsbury: It’s speed, cost and efficiency. They would like to achieve all of those. The challenge that the trade business faces is the cost complexity to do all of this. There are so many different things competing in the financial world, and the time to implement is going to be far longer than people believe it is.
GTR: From the very nature of technology evolving today, do you think the banks are being forced to collaborate? Is that collaboration working?
Bidwell: I think it’s in the interests of banks to collaborate. I can draw a parallel with the regulatory regime challenges faced by banks over the last few years. Significant progress has been made by the banks coming together and presenting a united position to regulators.
Ainsbury: I think you’re right. There are a couple of examples over the last 12 months where you have seen banks coming together, because it is far easier and far more beneficial for our clients to work together than to try and do it in a silo. But it’s not just about banks; it’s about the businesses as well. Unless we have that kind of collaboration, it will be difficult.
Skaanild: Collaboration is key. The way we have built our network out within certain industries has been through the collaboration of competing corporates within that industry. Electronic documentation is something that it is fairly new. If you’ve got a host of different corporates who are using it, requesting as a collaborative unit for their banks to come on board, their shipowners to come on board, their buyers to come on board, that is what moves the industry.
What we found in the early days was within the energy industry or the metals industry, some of the mining companies, for instance, were asking their competitors: ‘Why don’t you start using electronic documentation, because I’m having a challenge trying to convince my buyers to accept it?’ With six suppliers plus a few trading companies in the middle asking the same buyers to do it, those buyers see that this industry has moved, and that they have to start adopting this. Then you apply that model to the next industry segment. And slowly, you are building a cross-section of shipowners who are then signed up, and a cross-section of banks who are then signed up.
Bidwell: We shouldn’t be afraid of that collaboration either. We have to be confident enough in ourselves to be able to differentiate ourselves in a different way.
Ainsbury: The banking industry is full of examples where banks and fintech companies have gone away and developed their own stuff without consultation, then been unable to get clients, customers and companies to adopt the technology because they don’t see the need for it. It is important that there is collaboration with the right people and the collaboration is early, otherwise you end up with something that you’ve developed, that is fantastic, yet nobody wants to use it. It’s all about working with industry sectors and early adopters so you actually get buy-in.
Jamieson: In general, it feels like organisations in most industries are moving away from the idea of having full control: ‘It’s my entity, it’s my data, it’s my organisation.’ This isn’t just financial services. No one organisation has a monopoly on ideas, and you need to be more open in order to develop with others.
Innovation and collaboration are not mutually exclusive. You need to be able to not only broaden the thinking which collaboration will absolutely give you, but it allows you to look at things holistically and across the full value chain.
At the moment, a lot of the blockchain PoCs are taking one element and exploring, but actually, the true movement and disruption will come with collaboration, standardisation, and looking across holistic value chains.
GTR: What are the biggest challenges you are facing?
Pikett: Scalability is the big thing for us, more than anything else. We are scratching the surface now in terms of the number of businesses we want to have a relationship with. We want to grow, we need to be agile – not in the methodology, but in the approach. We need to be able to turn on a penny and offer something different because something changes. We are going to go through even more changes in the next decade, more than we have seen in any other decade in the last 30 to 40 years. If we can develop open systems that can be easily altered, changed, or torn up and redeveloped quickly, then we are in a good place.
People are always the biggest barrier to change, because people get settled into ways of working and ways of doing things. I always like to put people on the complex face-to-face part where they’re needed, and let computers and systems do the rest for accuracy, scalability and value.
Jamieson: This is where you get a bit more control with permissioned ledgers. You might not have trust but you know the parties. There are still questions around jurisdictions. I think if you took a permission-less blockchain like bitcoin where it’s completely open, yes, it’s hard to have any tracking. A permission ledger just gives you that bit more control.
Blockchain wasn’t necessarily built to deal with complex transactions that may require a degree of privacy or control, and that is why you are seeing things like Hyperledger and Corda being more based around the needs of those complex use cases.
Pikett: A lot of the things that you are talking about reflect quite complex businesses that have very complex infrastructure around them and turn over large amounts of money. A lot of the people that we work with are still businesses in their kitchen who operate off their personal email and don’t have that level of complexity. Trying to provide something for all people and all businesses is actually quite tough.
GTR: How are you encouraging or engaging in collaborative initiatives?
Pikett: For us, collaboration is interesting. Everyone thinks of government as one thing. But government is many things to many people, and different departments are very separate. They have their own budgets, they have their own offices and they have their own hierarchy, reporting to different places.
We sit on various cross government boards looking at the border and the movement of products and services – trying to work out how technology can be used to improve customer experience. It is by bringing technology into design that you get transformation in how you think. You can’t just look at the moving items.
Also, I think that UKEF/bank collaboration is a pretty good example of how organisations can work together.
Nichols: I wonder why, if we want to simplify everything, do we scare people off by talking about blockchain? The notion of DLT is extremely powerful.
With blockchain, it’s what you can do with it that matters. That is going to be driven by adoption and standards. We have to collaborate with multiple entities. The idea that we actually know what is going on across all of these people would help the banks, and enable us to be much more proactive in the way that we offer guarantees, which reduces the risk, and helps with cash flow. We do like to make these things incredibly inherently complex, when the idea behind them, distributed ledger, is a great idea.
Skaanild: The way we work is we provide a web-based workflow platform from end to end, right from the sale of goods contract right down to final delivery of the goods. There are so many parties along that supply chain, finance chain, that are all looking at blockchain. What we are trying to do is get technology providers together to collaborate on how we can provide a practical, scalable, cost-effective solution that can be deployed in the real world outside of a lab environment.
Jamieson: We have a range of innovation assets which allow us to collaborate internally and externally. We have a presence in Silicon Valley, which isn’t a fintech ecosystem, but an innovation ecosystem that you would want to learn from to broaden your thinking. We have strong engagement partnerships with Israel, a hotbed of activity for data and security.
We have people in London scouting the UK and Europe. Internally, we have design-led thinking sessions, where we work collaboratively across the bank to solve a problem or identify an opportunity using innovation. We also do hackathons, which allow us to become a bit more open. There are lots of ways as an organisation that we are using these tools to collaborate, to learn, and to develop our innovation agenda.
Bidwell: One of the more interesting things that I think is going on now, and this starts to touch on the trade world, is that there are initiatives starting to look at customer due diligence and know your customer. At the moment, every bank has to do that themselves. That is an incredibly painful experience for a customer to go through every single time with a bank.
There are two or three relatively early adopters looking at how they provide something, whether it be DLT or whatever technology, that allows that to happen once. The regulatory engagement here is important as well. Regulators have to acknowledge that that is an accepted vehicle to hold customers’ information. If it’s in an appropriately regulated environment, other banks and other institutions can rely on that so it only has to be done once.
Ainsbury: A great example with the banks is the building of the department for international trade (DIT) exporters’ database. UK banks are collaborating with the DIT to encourage business to register on the ‘Find a Buyer’ service. It is helping market and profile UK businesses to potential overseas buyers. That’s starting to build now, from what was a concept six months ago, to being an active tool that exporters are starting to use and see the benefit of.
Pikett: I think it’s allowing us to then understand customers better and build out more services that perhaps you as banks may not ever offer; it means we’re not double handling businesses.
Something that we talk about a lot is whether customers care who is offering them that service or not. Do they care whether it is government, chambers of commerce, a corporate, a bank, an insurer? Does it make any difference to them other than the cost and the trust issue? I think there is something for us to consider in terms of where we should offer services and how.
GTR: What can we expect to see this year and next?
Skaanild: A lot of proof-of-concept testing. Two years ago, when you talked about blockchain, it was the panacea to all our woes. People are starting to scratch below the surface and understand how this actually gets built up. And there is a combination of factors there. Smart contracts and the internet of things (IoT) are part of what will eventually evolve into what we currently perceive to be the blockchain.
We are doing testing on an IoT device to feed performance data into a client contract. You’ve got a shipment that is going from A to B for x number of goods, and part of the contract is also that it must arrive at a certain temperature, with a certain humidity level.
As the order is produced and transported, the performance data feeds into the smart contract. Banks are looking at the same data coming from the IoT device to see where the goods are now.
The risk profile diminishes as the cargo gets closer to destination, and as the quality of the goods is being monitored, you can see that it’s in a good place and you can slowly release finance to the parties involved in the trade. Those kinds of tests are going to be done. Taking that data and deploying it into a real-world scenario will be happening in the next couple of years.
Jamieson: You do have this piece around regulation, or the role of the regulator and the role of standards. Another issue is that everyone is exploring with different blockchains, which raises the importance of interoperability.
These are some of the things that you will hear a lot about this year and next in terms of being able to take blockchain from PoC to some of the big use cases that go across financial services or into trade.
Everyone is talking about blockchain. We will know it has worked when they’re not talking about it. It will be like the internet.
It will be the thing that sits underneath. Until we answer some of those questions around privacy and scalability and the role of regulatory standards and interoperability, we probably won’t see the mass adoption.