BNP Paribas has been working on a range of new initiatives to shake up the trade finance industry. Jacques Levet, the bank’s head of transaction banking EMEA, provides an overview of these plans, and what it hopes to achieve.
Why does the world of trade finance need to be reinvented?
Levet: Trade finance aims to mitigate risks and provide financing for commercial transactions – it is probably one of banks’ oldest activities. Over time, it has become more and more complex, notably due to the multiplication of stakeholders, the increasing number and complexity of regulations, and the sophistication of new instruments and solutions. Nevertheless it has remained essentially a manual and paper-driven process.
The digital revolution and exponential development of new technologies are about to trigger a true transformation in trade finance. The Internet of Things (IoT), artificial intelligence (AI), blockchain, amongst other developments, will not only bring increased speed, efficiency, transparency and traceability, but they will also profoundly change some commercial business models. The reshoring of factories closer to customer markets, for instance, boosted by the development of 3D printing, robotics, etc, could shift global transportation activity from trans-continental shipments to last-mile delivery. As the paradigm of physical trades evolves, trade finance will follow.
The convergence between the physical and the financial supply chains, through the development of trade platforms and market places, will also dramatically accelerate the transformation of trade finance. Those platforms that have traditionally facilitated the trading of goods between buyers and sellers through delivery services, swift circulation of information and seamless payments, have also started offering financing solutions. The cornerstone of their model is the data generated at all stages of a trade. This data is aggregated and analysed through complex algorithms allowing for improved quality of service, mitigation of risks, identification of new commercial opportunities and behavioural predictions. Having a holistic view of the ecosystem and being able to aggregate and analyse data has become critical.
The necessity to re-invent trade finance, is, of course, challenging but also extremely exciting and an amazing opportunity for us at BNP Paribas to differentiate ourselves. It also generates an incredible amount of positive energy, both within and outside of our organisation. Indeed, we won’t re-invent trade finance by ourselves: it will happen jointly with our clients, our partners and our peers.
How important is it to work together with clients in solving these problems, and how is the bank doing so?
Levet: There is no strong-enough way to express how essential it is to involve your clients from day one, be it in the resolution of minor issues or in the development of major new products or services. Although it seems trivial today, positioning our clients at the heart of our activity and ensuring they are deeply involved in all our innovation initiatives was not completely obvious in the past.
Corporates are becoming increasingly demanding and are requesting tailor-made solutions to match their specific issues and ambitions. Banks, on the other hand, strive to industrialise their processes to make them cost efficient. Co-development and new technologies are therefore key to reconciling what appears to be conflicting interests and achieve a kind of mass personalisation of services.
Co-design starts with the understanding of our respective pain points, constraints and objectives. This mutual empathy exercise is what leads to a true partnership and ultimately to the launch of the relevant solution. So much so that the involvement of at least a couple of clients has become a prerequisite for the launch of any new transaction banking innovation project. In addition to all the relevant people within the bank (business line, IT, operations, legal, risk and compliance) and our clients, we also often include other external partners such as financial technology (fintech) companies, in the co-design.
After the prototyping phase is complete, we widen the group of clients to participate in the testing. A good example of this occurred in April 2017 at our “Let’s build our future together” event, where eight prototypes were tested by about 40 clients. The feedback we received during this event allowed us to validate, accelerate the development of, or kill some of those prototypes. Other similar events where clients get a peek at what we have in our innovation pipe, called “Technights”, occur on a regular basis. In September we hosted these events in Paris, Milan and Madrid.
How is BNP Paribas hoping to achieve change – what has the bank done thus far?
Levet: Change is first and foremost a mind-set, a culture. It cannot be the sole responsibility of a handful of people. It is critical to on-board all employees on that journey, to ensure you give them the means to participate proactively in the transformation of our business line.
Every single employee should indeed be able to provide his or her contribution, however modest, to the trade finance revolution. It starts with empowerment and trust, which are paramount to releasing creative energies.
Speed is naturally of the essence. You can never move quickly enough. Nobody is willing to wait, not our clients, or our employees, and certainly not the competition. We must become agile and dramatically reduce our new products’ time-to-market. To achieve this, we need to mimic the attributes of the fintech world within a large international group and foster so-called “intrapreneurship” (behaving like an entrepreneur while working within a large organisation). In that respect, we have organised, for all employees, multiple training and, more importantly, sharing sessions to interact with fintechs and start-ups, in order for them to be exposed to disruptive ideas and new technologies. All employees are also vividly encouraged to take part in an agile project of their choice, alongside their daily responsibilities, to learn and experience first-hand new working tools and methodologies, such as Design Thinking, Lean Start-up, and others, that are essential to moving fast, concretely and efficiently, with a test and learn approach.
Agile projects launched in the last couple of years have come in different shapes and forms. Some are essentially technology-related (blockchain, robotics, AI, IoT, etc), while others focus on the convergence of physical and financial flows. What all of them have in common is the quest for a dramatically improved client journey and the need to make use of smart data. Alongside automation, reporting and benchmarking, data is also used to develop predictive tools.
Looking at blockchain technology, for instance, we are currently rolling out two proof of concepts that were developed following a BizHackathon held in January 2016.
“MyCollat” is a collateral management solution for commodity clients, co-developed with Sucafina (a multinational coffee merchant based in Switzerland), which is expected to be live by the end of the year. “Cash without border”, co-developed with Panini Group (a leader in the published collectable sector and publishers of children’s magazines and books, founded in Italy ) and Amcor (an Australian-based multinational packaging company), will allow real-time cash transfers within the BNP Paribas environment and will be live in Q1 2018 in six countries.
Marketplaces are also high on our agenda and several initiatives have been launched, both internally and together with external partners, to explore the potential of such platforms. Our objective is to help our clients develop their core business and venture into new developments by facilitating their access to, and organising seamless co-ordination with, an ecosystem of new and existing counterparties.
Although fintechs remain competitors by nature, co-working with them can in fact be mutually beneficial. We are therefore working extensively with some of them to see if – and how – we could package some of their innovative solutions within our own offering. To do so, we can develop simple relationships, enter into true partnerships, or even make equity investments. Whichever makes the most sense. Fintechs are true catalysts of innovation, extremely agile companies, which can potentially support us in simplifying and improving our clients’ user experience.
Finally, we also work with banks within and outside of public consortiums, like R3 for instance. Those consortiums, led by either a technological partner, a third party or the banks themselves, have an important role to play, notably when market standards are still being developed or ensuring interoperability.
Looking ahead to future projects in the trade finance space, what sectors will you be focusing on?
Levet: Our ambition is to enable the exchange of goods and services anywhere, anytime and in a safe and trustworthy ecosystem. To support our clients with their commercial activities, we must aggregate and offer a wide range of innovative solutions (be they internal or originating from third parties), offer a global view and analysis of their activity, extend the financing capacity to the whole value chain and ultimately help our clients better serve their own clients.
To support our clients’ growth, we should also facilitate their access to different platforms to enable a seamless selection of, and connection to, new partners. Our expertise, notably in risk management, together with our extensive geographical footprint and strong multi-local franchise are also key assets in supporting our clients’ global business.
We discussed the importance of data management earlier on and clearly that remains a major focus for us, including, of course, the security aspect of this activity which, as you would expect, is our number one priority. The proper use of internal and external data increases transparency, traceability and allows the development of new services, including predictive analysis, around, for instance, open account activity.
Finally, and perhaps a bit more down to earth, we also work extensively with our clients to help them improve their working capital metrics and accelerate their cash conversion cycle. As the tools to do so are deeply embedded in the core operation of a company, it is paramount to work not only with finance, but with all stakeholders: procurement, operations, sales and accounting – all of which have their own specific, and sometimes divergent, KPIs. As such, this becomes a true co-development exercise.
Those are truly exciting times for trade finance, during which we need to be focused, agile and swift.