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Collaboration between traditional and alternative lenders will be key for the future of European exports, according to speakers at the GTR Europe Trade and Export Finance Conference held in Hamburg last week.

While some corporates raised concerns about the fact that the alternative trade finance sector is less regulated than banks, the consensus was that the future of the industry lies in collaboration.

“There is the realisation that alternative sources of finance are here to stay. Reliance by the borrowing community on bank finance as sole source is perceived as too risky. Quite often banks didn’t have the liquidity in 2008-09, and that has prompted corporate treasurers to broaden their financing sources,” said Nigel Houghton, director of the Loan Market Association (LMA).

Alternative financiers, including funds, peer-to-peer lending and crowdfunding, are broadly seen as quicker to respond to loan enquiries and more flexible, though some banks argue this is due to the lower amount of regulations applied to them.

“My major concern is around the lack of regulation. Even if it’s just Basel III, that’s a huge cost for banks to sustain. There is counterparty risk, credit risk, legal complexities, money-laundering… Crowdfunding could be a vehicle for layering money of illicit sources. For competition to be fair, all the players must work under the same regulatory umbrella. Do you know how much money is needed to set up a crowdfunding platform? £20,000. That is unfair competition,” pointed out Mauro Bonacina, Emea sales, working capital solutions and insurance, treasury services Emea at BNY Mellon.

As regulations move forward and you get some bad press about people losing money, all of a sudden regulation hits very quickly and only the fittest survive. Matt Goddard, Trade Finance Partners

Alternative finance representatives stressed the difference between “non-bank lenders” and the peer-to-peer or crowdfunding world, adding that regulators are likely to crack down on the latter once investments gone wrong make headlines. “They don’t necessarily have the longevity of staff and are not as answerable to investors as we are. Trade finance is quite a risky business and my apprehension about peer-to-peer and crowdfunding is that you can just set up on a shoestring and be open for business but as regulations move forward and you get some bad press about people losing money, all of a sudden regulation hits very quickly and only the fittest survive,” predicted Matt Goddard, head of global sales at Trade Finance Partners.

Bankers recognised that although the crowdfunding industry doesn’t yet represent a threat to their sector, there is a risk “to be disintermediated” in the future, and said collaboration was the way forward.

“My opinion is that they can coexist. Crowdfunding is also an opportunity for banks. Why don’t we create crowdfunding units with the power to make decisions, since it shows that there are already investors backing the project? We could also do a sort of matching programme: for every dollar you raise through crowdfunding, we banks could provide another dollar. We could also see it as a form of investment, buy a crowdfunding platform: there are more than 1,000 around the world, and most of them would be profitable, generating around 2.5% returns,” Bonacina added.

Collaboration was also mentioned in the insurance arena, where now that the private sector has returned to pre-crisis capacity levels, export credit agencies (ECAs) are involved in fewer export deals.

Today some clients ask for certain things that ECAs cannot do, and in that case co-operation between the private market and ECAs can be positive. Paolo Frascarolo, Tenova

Kai Gieselmann, head of export finance and credit management at farm machinery producer Claas KGaA GmnH, told GTR on the sidelines of the event: “For short-term cover in mature markets in Europe we have been using short-term products from private insurers; for emerging markets in the past typically we have used a lot of ECA cover. In the last year it changed a lot, and we are now using private risk insurance more and more even for emerging markets.

“One reason is, with the growth of the international production network, for ECAs it’s not always easy to find the products of the right origins, so in that situation we tend to use private risk insurance because it’s more flexible and in that respect easier to structure.”

Paolo Frascarolo, head of finance at reheating furnace manufacturer Tenova, concurred, adding that “today some clients ask for certain things that ECAs cannot do, for example financing of the local portion, and in that case co-operation between the private market and ECAs can be positive”.

Private insurers talked about the increase in the proportion of their income that is generated in collaboration with ECAs – 30% last year for The Channel Syndicate (part of the Lloyd’s group).