The world of trade finance continues to evolve through technology advancements and partnerships between financial institutions and third-party fintech companies. Marie-Laurence Faure-Lepetit, Head of Digital Trade, and Alain Verschueren, Head of Innovation & DLT, at BNP Paribas’ Trade Finance Competence Centre, discuss the ways in which collaboration has progressed, and what may still be needed to get more projects off the ground.


Q: How would you categorise the current state of fintech collaboration – or competition – in the trade finance space?

Faure-Lepetit: Within the context of the trade finance industry, there are three broad categories of fintechs. The first is those companies and solutions that support and improve banks’ internal processes, for example anti-money laundering compliance or optical character recognition solutions, and which help banks undergo necessary digital transformations. These solutions have generally been designed to be sold to banks.

The second category is the market utilities. These are companies that have been set up in the market and gather all the stakeholders of an ecosystem, including the banks, who then work together on a collaborative basis. The blockchain projects Contour and Marco Polo fall within this category. We’re now also seeing a number of national market utilities emerging, because there is some critical mass at the country level, where these projects can drive progress.

The third category is where the fintechs position themselves as either an alternative or complementary to banks. This is where the competition is probably a bit more intense. Some platforms for instance are positioned to bring together buyer, seller and financing parties, but focus on different aspects of the value chain. Some only handle the digital exchanges between parties.


Q: What sort of evolution are you seeing in terms of the bank-fintech relationship in trade finance? A while back there was talk about co-creation and collaboration, but has this changed at all?

Faure-Lepetit: We have collaborated together for some time now, so we know each other better. I think banks have realised that fintechs are not a wholesale threat to their business. Or perhaps we have learned to identify where the real threats are, and where they are not, and how to leverage that. On their part, the fintechs have learned how to work with banks. I would say we are at a more mature phase of understanding one another better. It’s getting more interesting, because we can build on this mutual awareness, and do more work together.

Verschueren: I still believe that collaboration is the name of the game, and will be for quite some time. There are different ways to collaborate: it’s not only about co-creation; it could also be a joint venture or a vendor relationship, for example.

Fintechs continue to have an advantage over banks in some respects in that they can jumpstart ideas more quickly, because they have fewer hurdles and are more agile. On the other hand, banks are learning to master some of these new technologies as well. In the trade industry specifically, banks have a deep knowledge of trade finance products, they have the balance sheet, the customer base and their trust. Nevertheless, there is more to win when we work together.

No doubt fintechs will need to continue to position themselves in areas where they can add value. It’s an evolving landscape.


Q: Do you think that potentially we’ve already seen the most exciting technology developments in the trade space – and fintech companies have already picked all the low-hanging fruit?

Verschueren: I believe that there is still a lot more to do. The technology evolution is not over – and I don’t think it ever will be.

Perhaps we’re unlikely to see more big consortia around distributed ledger technology (DLT) in trade finance – you cannot keep doing these projects over and over again. Once they’re established, it then becomes a question of market uptake.

But there is still considerable work to do around interoperability and standards, and the much-publicised unmet trade finance needs, which are all areas where fintechs may have a role to play. There are a multitude of other applications too, such as artificial intelligence, the internet of things, security, traceability, and tokenisation, for instance.

I’m not sure that what has been done in the past was low hanging fruit either, because it has not been a walk in the park to get to where we are today and move some of these projects into production.

Faure-Lepetit: With every new technology, there are usually a number of phases: first, the creation of the technology and a focus on its capabilities, and second, the application of the technology to use cases. I believe that the trade finance industry is at the start of the second phase; the technology is there, and in order to get to the third crucial phase of market adoption, it is being tested, adapted and fine-tuned to ensure it is usable for all players in the market.


Q: Many banks’ fintech collaboration in trade takes place as part of the various DLT consortia projects: we’ve seen a mixed pace of rollout into commercial production among these various initiatives – what do you think could be holding back some of these projects from going into live production?

Verschueren: Being able to move to live, commercial production – as we’ve seen with some of the projects – is a success in itself.

DLT is, effectively, new – the protocols used in these consortia are often only three to five years old, and they’re constantly evolving. So we have to keep in mind that we are talking about technology that is in its relative infancy.

The challenges to get to production have been underestimated in all these consortia projects.

Setting up a project, agreeing on the functionalities and establishing a new company – as has been the case in several projects – is already a significant task, and then you have all the challenges around governance, HR, capitalisation, business plans, and so on.

When it eventually moves into production, you then have all the contractual elements. Just signing a production contract can be a lengthy and difficult path. Because many aspects are new – for everyone – and complex, it takes a lot of time; usually much longer than what was originally anticipated.

Banks have strict internal controls and processes, and are cautious. One reason why corporates like to work with banks is because they trust them, and banks want to preserve that. Even more so with new technology, banks need to go through a period of learning and internal approvals, tests and retests.

Now that those approvals and contracts are in place, the most important aspect is the market uptake, which is a bit of a chicken and egg situation.

Often when you speak to corporates or banks, they say they’ll join a project when they see others doing the same. But if everybody follows that model, nothing will ever progress. We need first movers, and we need second movers. This is going to be the challenge in the next several years, and my call to these institutions is don’t just sit back and wait until others have proven it works. It does work, but it needs sufficient adopters.


Q: As a bank, what kind of developments would you like to see that would ultimately meet your digital trade finance needs?

Verschueren: If there is one thing I would like fintechs to do is to work with an open mindset with technology that can interact easily with other solutions. There are some fintechs with that mindset – they may use standard APIs, for example – who are not afraid of others trying to build something similar. Then there are others who appear to establish a closed network and want to protect themselves.

I’m totally in favour of open platforms, especially in the trade industry, where the ecosystem is global, where there are so many players and there is room for everyone.

Faure-Lepetit: Standardisation is key. I don’t think one solution can meet everyone’s needs, so there must be different solutions, complementary to each other, and which can be integrated. We need to find ways through standardisation and integration to facilitate market adoption, otherwise it’s going to be very difficult to convince corporates to take that next step.


Q: What are you most enthusiastic about in terms of the future of digital trends in the trade space?

Verschueren: The most enthusiastic I get is when people collaborate and find areas where they can jointly achieve more than what can be done alone. There are areas where this can still be explored further, such as for example traceability, elimination of fraud and cyber security. These issues are high on everyone’s agendas, and we need efficient tools to be able to address them.

Faure-Lepetit: Due to the pandemic, digitalisation has become a top priority for all trade stakeholders. In the past we have had some pioneers seeking out new innovations, with mixed results, but now the whole market is engaged in addressing digitalisation needs – it’s a very good momentum.