With trade finance digitalisation efforts being fast-tracked by the Covid-19 crisis, it is essential that the transformation taking place across the industry is one that can be sustained over the long term, say Marie-Laurence Faure-Lepetit, Head of Digital Trade, and Alain Verschueren, Head of Innovation & DLT, at BNP Paribas’ Trade Finance Competence Centre.
GTR: The Covid-19 pandemic has accelerated digitalisation efforts in trade finance. What do you think have been some of the greatest market successes?
Faure-Lepetit: During the lockdowns, what has been important for trade finance, which is a very traditional business, is that there has been substantial and swift mobilisation across the market to implement digital solutions. Reactions were swift – even at large organisations – which is exceptional. For example, BNP Paribas was quickly able to offer digital subscriptions to our trade e-banking solution, in addition to soft tokens for access authentication, as well as accept issuance requests received via e-signed PDF.
Although there was a pre-pandemic push to implement incremental innovation based on existing technology, these initiatives have been boosted since the outbreak of the virus. For example, shortly after confinement measures were introduced, the regulator in India and Algeria announced that they were encouraging the use of electronic documents, and Saudi Arabia launched a digital platform that allows for the automation of bank guarantees.
Some of the solutions that have been introduced are not necessarily sustainable, but they have helped to get things moving. My hope is that a great deal of them might be maintained and lead to long-term improvements in the market.
Verschueren: It’s still too early to evaluate the real market successes. The pandemic is not yet over and there are many more consequences that we have yet to see.
However, what we have observed in all institutions is a welcome acceleration of decision-making processes, with decisions that would ordinarily have taken months now being concluded in much shorter timeframes. Hopefully we will see moreof this going forward.
Certainly the recognition of the need to digitise has never been greater. But the real work to make digitisation happen is yet to come. For some time now we have needed authorities to start taking action and adapting legal frameworks to become digital friendly. Industry bodies like the ICC, BAFT, ITFA are pushing in that direction. We hope that this will trigger that.
GTR: What are the risks of this increased drive towards digitalisation? Could we end up seeing some unintended consequences?
Verschueren: For quick solutions that have been put in place in urgency we have to be careful that they are secure enough before becoming normal practice. Some of the risks then could be IT security issues, for example, if the channels being used are not properly protected. There may also be increased risk of fraud, such as double financing.
While we build on the dynamics that the crisis has fostered, and expand on the initiatives that have been put in place, we need to work towards structural solutions that include the use of secure platforms based on best practices, solid agreements and rules within an adapted legal framework. We don’t want to end up with solutions that would, in the end, make digitisation appear counterproductive.
Faure-Lepetit: It’s important that laws, practices and habits evolve in a sustainable way to ensure that the changes that we have seen – such as in India and Algeria – are here to stay. Many countries and counterparties have accepted the use of digital documents, but only temporarily. In trade finance, the maturity period of certain types of documents are very long. There is a risk that, over time, some of these countries or counterparties will cease to legally recognise digital documents, perhaps because they no longer have processes in place to deal with them, or because they prefer to revert back to the use of paper documents for whatever reason. This could create challenges when it comes to deciding which documents are legally recognised, and which are not.
GTR: What kind of conversations are you having with your corporate clients about their own digitisation efforts? Are they equipped with the necessary know-how and technology to be able to keep up with this growing trend?
Faure-Lepetit: We have been talking to our clients a lot since the outbreak of the pandemic. These conversations have mainly centred around facilitating their operations and fixing urgent issues.
Sometimes all that they’re trying to do is replicate their internal processes with their external stakeholders. For example, some companies have set in place internal workflow validation through e-signatures. What they want to do now is implement these processes externally as well. It’s an interesting move and a good first step to standardising processes. However, it is not really a digitalisation strategy since it only covers corporate-to-bank exchanges and does not allow for the full automation of data exchange such as what’s offered by SWIFTNet or host-to-host connectivity.
Verschueren: Pre-crisis, one of the difficulties we experienced was trying to find clients who are willing to test new solutions. All clients are interested in learning what’s happening, but few have the time to test new initiatives – they prefer to come back when things are in full production. But in order to be in full production it is essential to do tests and incorporate client feedback. In terms of the various trade finance consortia, clients have been even less inclined to test during the crisis because they are focused on maintaining their operational processes and sometimes purely on survival. Hopefully this will change, and the pace will accelerate. I don’t think it’s necessarily a question of being technology savvy. Altering mindset, changing habits and overcoming the fear of the unknown are at least as important, if not more so.
GTR: Are banks increasing their collaboration with fintechs? Do fintechs have what it takes, and what will set aside the winners and losers?
Verschueren: Banks and fintechs continue to partner, whether directly or through consortia – take Contour or Marco Polo, for example. If anything, this may even increase. The real test, of course, will be the rollout of the solutions: the success or failure of these projects may be the determinant for the future of some of these fintechs. This is something we will start to see fairly soon because many initiatives are coming to fruition. I understand that private equity appetite for investment into fintech is decreasing. If this is the case there will be even more pressure to achieve results and accelerate product development.
Perhaps the current crisis will be a double-edged sword for the fintech sector: an opportunity to accelerate digitisation and automation solutions because the market will be even more keen to move in that direction, but also increased impatience in the market for these results to be achieved, since you may have a lack of investors for those which do not deliver.
GTR: How has the pandemic impacted your approach to digital trade going forward?
Faure-Lepetit: The digitalisation of trade finance is certainly very high on our list of strategic priorities, and this has been boosted even further by the crisis. The situation presents a unique opportunity to push the digital agenda and leverage what has already been achieved over the last few months. There is now the recognition that things can be achieved in the short term – we can take concrete steps today. The mindset of most of the stakeholders in the industry has really been transformed.
Verschueren: We can be sure that the crisis will lead to restrictive impacts on budgets everywhere. But realistic and promising digitalisation projects should, and most likely will, keep their priority, because banks and corporates will recognise how essential they are.
Of course, there are no blank cheques, so there is a need to deliver.
For trade finance consortia projects, many of which are in the early stages of production, it’s essential that they start delivering very soon. They’re likely to be a bit behind schedule, but that’s not entirely abnormal.
The real question is going to be the market uptake, which will be essential. So, if banks, clients and regulators are really intent on the move to digital, then now is the time to, respectively, join, test and facilitate these initiatives – we need all of these actions.
GTR: What other kind of innovation might we see emerging in the trade finance space?
Faure-Lepetit: My focus is very much on incremental innovation. So, for example, looking in the bank guarantees space, I think it’s possible to drive much innovation in a relatively short time frame. Because there are fewer stakeholders in this domain – just the applicant, the guarantor and the beneficiary – the challenges to digitalisation are not that onerous.
We have already seen a number of interesting projects, such as delivery of digital guarantees – albeit mainly domestic ones.
Verschueren: There’s already much innovation out there – I’d be happy to see some of the main initiatives coming to production and being adopted by the market. Interoperability between the many platforms will be a very important next step.
There’s certainly much more to be explored in terms of the Internet of Things, Big Data, AI, biometrics and quantum computing – these are just some of the areas that are only at the beginning and which will drive new initiatives that we haven’t even thought of yet.
Another area – not directly related to technology – is that of sustainability, which is very high on our bank’s agenda. I think there could be interesting innovative initiatives in the trade finance space that can help to achieve sustainability goals.