GTR spent the week in Sydney to meet with senior trade finance officials at Sibos in October. Finbarr Bermingham reports on the mood on the ground.
1. Instant payments for trade are getting closer to reality
One of the great bugbears of digital evangelists in trade is that documents often take longer to transfer than the cargos they represent. Payments can be equally frustrating: why, when it’s possible to zip across the world in under a day, do we wait days or weeks for trade payments to settle?
Chastened by the challenge from upstarts such as blockchain-based payments provider Ripple, Swift has spent the past two years trying to significantly reduce the time it takes to settle trade payments. Successive successful trials of its global payments innovation (gpi) solution show that cross-border payments around Asia Pacific can be conducted in seconds, bringing trade into line with the rest of the business world. This was a dominant theme of the 2018 Swift-hosted Sibos event.
“The fact that you can get an international payment initiated in Singapore into a bank in Australia in under 10 seconds, that’s a big thing,” Mark Evans, managing director, transaction banking at ANZ told GTR at the event. Among dozens of conversations it was clear that this is something that has been demanded by the industry.
Incidentally, these aforementioned payments are becoming a bigger part of banks’ wallets. A survey launched by consultancy group McKinsey in Sydney shows that while payments traditionally provided around a third of banks’ income, that figure shot up to 43% in 2017. The cynical view would be that the growth of independent payment providers makes it even more imperative for established parties that bank-owned Swift delivers the demanded improvement.
2. Banks are in unchartered waters
Much is made of the sea change caused by digitisation and this is certainly making banks worry about their future roles in the trade finance sector. Many banks, including those in the US, are in unchartered territory given the current geopolitical climate. “In the US, we’re not used to being such a prominent part of political instability – it’s a new thing for us,” Geoff Brady, head of global trade and supply chain at Bank of America Merrill Lynch, told GTR.
Sibos is a technology event, but this underlying geopolitical issue was still hard to ignore. Many made the point that fintech solutions can help iron out underlying risks. Through collaborative tools such as the Trade Information Network (TIN), banks can share information on counterparties and help ease the burden of know your customer (KYC). Should the trade war become more litigious, this is a definite benefit to banks involved.
Speaking to GTR at the event, compliance tech company Accuity said it has been fielding more enquiries from banks and companies eager to vet their supply chains since the trade tensions began rising. “There’s now more recognition that due diligence has to be done – that goes beyond trade banks into corporates. There’s a lot more due diligence being done on third parties, looking into adverse media coverage, IP infringement or litigation,” said Bharath Vellore, Accuity’s Asia Pacific managing director.
3. Blockchain is not the only game in town
The pre-Sibos announcement that TIN, previously known as Project Wilson, was to be hosted on cloud – and not blockchain – came as a surprise to many. The official line is that the project was always technology-agnostic and that the tech partner, CGI, felt that blockchain was not sufficiently ready to be used widely or at scale. At the product’s launch at Sibos, Michael Vrontamitis, head of trade for Europe and the Americas at Standard Chartered, said that the focus was on “making sure we had a useable system”.
“A few members of the press were surprised that this wasn’t on blockchain. But we’re trying to wrap this up very quickly. We’re trying to get capacity to a million corporates within a year or two. So we need something that works right now, is fast, reliable and can connect really quickly. It wasn’t a technology-based solution that was trying to solve a problem, it was a problem that was clarified, tested, and then we came up with the solution,” Vrontamitis told the event.
This sounds reasonable: there were too many bankers with hammers looking for nails during the first wave of blockchain proofs of concepts in trade. But it begs the question: how many other projects are going on blockchain that could be hosted on cloud technology, or something equally available? How many of the pilots that banks have invested in heavily over recent years ever passed beyond the press release stage?
It’s little wonder the industry in 2017 entered what research firm Gartner terms “the trough of disillusionment”, where “interest wanes as experiments and implementations fail to deliver. Producers of the technology shake out or fail. Investments continue only if the surviving providers improve their products to the satisfaction of early adopters.”
4. The move to digital will lead some banks to exit trade
Many of the benefits of digitisation relate to reductions in cost. By using robotics and automation, banks can cut headcount and reduce staffing costs. By deploying blockchain technology, banks can reduce the risk of fraud and stop getting ripped off by scurrilous actors at Chinese ports, and so on. Less of a conversation is how many banks can actually afford to get to the stage where these technologies are used at a scale that makes it cost efficient.
The global head of trade at one US bank, who spoke to GTR on condition of anonymity, pointed to the fact that while his trade book was US$1.9bn last year, there were banks at Sibos doing about US$25mn annually in trade finance. If it costs US$5mn to implement a blockchain solution, then how can they make that investment? Should there be a critical mass of banks that move to this technology, those that can’t make the leap will face a reckoning.
“I don’t know if all these banks will be in trade anymore. Look at the investment that’s needed to make blockchain work – the main drawback is the massive scale needed, and that’s expensive. There’s going to be a fall away and in years to come, you won’t see so many of these trade banks at events like Sibos,” he said.
5. What about the humans?
In his keynote speech to open Sibos, ANZ’s chief executive Shayne Elliott said that robots cannot replace humans in banks. It’s a comment that’s hard to tally with the giddiness throughout the trade business about automation. If they aren’t going to replace people, then what’s the point in having them at all? There is a societal element to the influx of technology – not just in banks – that we’re all going to have to reckon with.
Accenture’s banking lead for Europe, Cécile André Leruste, told GTR that its research shows that headcount may not actually decrease. “We made very extensive research globally to understand the impact on employment. We found out that there are some jobs, in particular the very tedious tasks, which are going to be disappearing over a number of months and years, but in total the number of jobs will be increasing – we were astonished by that,” she said.
Enno-Burghard Weitzel, head of product management trade services at Commerzbank, said that those jobs that are lost will free staff up to do more rewarding work.
“If you ask the operators about where they drive their energy in their day-to-day work, with the ever-increasing regulation and scrutiny we have to apply, it is very repetitive tasks that those people have to do. It’s very monotonous,” he said.
His bank has recently started automating some of the more manual tasks in trade, and he claims that “people are actually happy because they can focus more on those pieces of their jobs where they can put their experience into, where they can decide, where there are judgements to be made – that’s what drives the people. I am absolutely not worried about the social impact of bringing the robots into play.”
In short, it is a consideration, but there logically can expect to be some casualties if digitisation is taken to the nth degree. Banks must be planning for this, as stakeholders in society.
6. There is some well-needed realism in the industry
This was an event tempered by realism. Many of those interviewed by GTR were fed up with the hype about blockchain and about the “digital revolution”. “As much as things change, we’re part of a regulated industry and a lot of the things we do don’t change. People want customer service, ease of connectivity, accuracy and stability. A well-oiled transaction banking or payments business is one that you never see or hear of,” said Evans at ANZ.
There is consensus that nothing will change without universal standards and that technology that cannot work at scale has limited use. “Everybody has stepped back and seen the reality, that we have all these great digital islands but without standards, we’re shipwrecked,” said John Ahearn, global head of trade at Citi. Ahearn earmarked komgo, a blockchain-based platform for commodity trade finance, as the platform in the industry most likely to succeed, simply because of the number and size of the member organisations.
Generally, the view is that collaborative platforms, which also include we.trade, Marco Polo and Voltron, have a better chance of succeeding than those being developed in isolation, but there’s also reluctance from banks to join every consortium on the market. “We’ve invested heavily in our own systems so don’t have the budget to be joining all these other ones. We have to make things work internally and get return on our own systems investment first,” said one banker, anonymously, who expressed scepticism as to whether all the platforms will survive.