The digital reinvention of the trade and trade finance space has dominated industry conversations for several years as established banks and new entrants race to come up with the definitive answer for trade’s woes – often competing with each other for a foothold in the market.
Recently, however, a third way has emerged: that of greenfield business builds by banks, which combine the advantage of an existing bank with the agility and cost base of a challenger.
“For some banks, the end game of greenfield may be to decouple from legacy infrastructure and build a new modern, infrastructure that can meet the long-term needs of the business. While many banks have taken an incremental approach to replacing components of their architecture, greenfield advocates have concluded this will be too complex, too costly and take too long. They favour a bolder approach: to build a new bank and migrate customers and data over, and then decommission the legacy infrastructure,” says consultancy firm Oliver Wyman in a new report, How Greenfield Can Transform Corporate Banking.
The report’s authors highlight that banks, faced with increased disruption by fintechs in the space, are looking for faster ways to get new propositions into the market, becoming more fintech-like in the way they do things. According to the firm, greenfield projects will allow banks to break free of legacy systems and deliver radically improved offerings for corporates, faster and cheaper innovation cycles, a lower cost operating model, and a new way of working. “For incumbent corporate and transaction banks, greenfield is becoming an important approach to reposition the business and defend against disruption,” the report says.
HSBC is one bank in the trade space trying the greenfield model out for size. In 2017, the bank’s senior leadership put out an internal call for new business ideas. Vivek Ramachandran, then global head of growth and innovation, pitched a high-level business case around the need for a platform where buyers and sellers come together in order to facilitate business-to-business (B2B) transactions. Noel Quinn, at the time CEO of global commercial banking, sponsored the idea, and Project Jasmine (as it was then called) was born.
Ramachandran moved to Hong Kong in August of the same year, taking with him a handful of colleagues from the bank, and set up the standalone entity, now known as Serai. He spoke to GTR about the structure, objectives and business model of the new company.
GTR: What does Serai solve for?
Ramachandran: Lots of companies struggle to navigate the global trade market. Supply chains are becoming more intertwined, but you still find suppliers the way you always have. We’re trying to short-circuit that.
The Caravanserai were inns along the Silk Road where merchants found a haven to rest, trade goods, exchange knowledge and build relationships. The Serai of that time were an entry point to international trade. We are now building a digital equivalent for today.
Early adopters are coming onboard and bringing their supply chains. The beauty of the platform and also the challenge is it has to appeal to a small supplier in a developing market and it also has to appeal to a multi-billion-dollar company in the most developed markets. I’d like Serai to become the go-to platform for B2B trade because there isn’t one today.
GTR: How does it work?
Ramachandran: Our approach is invitation-led at this point in time. We invite certain companies on because they are someone who we know, they then invite their suppliers on, and they build their profile and connect. I claim to be selling to you, you have to validate the connection, much in the same way as a social network such as Facebook, where if I want to be your friend, you have to accept my invitation. The network validates itself. It’s not Serai trying to validate the network. We are also creating a way to define the depth of relationships between suppliers and buyers, because there are core strategic suppliers and there are also people you’ve done business with once, and we want to be able to differentiate that.
GTR: What solutions are you putting into the market on the back of Serai?
Ramachandran: We’re building a financing solution, which on day one is going to be restricted to Hong Kong as that’s the market that we’re testing it in. It is for Hong Kong-based SMEs and it is a digital, machine learning-backed credit scorecard and a trade loan. We have started testing that product with live customers, ie lending money. The intention is not to make a big splash about it; we will work our way through from single digit numbers of customers upwards.
GTR: Where does this finance come from? Is it from Serai or from HSBC?
Ramachandran: It comes from Serai, and every customer has to be onboarded by Serai. There is no financial information transferred from HSBC on customers coming into Serai. Every customer has to be onboarded again and we have to build the information we need. We are a fully-owned subsidiary of HSBC, but Serai is quite unique in terms of sitting completely outside of the bank, and developing a solution that’s not a banking solution, it’s a trade solution. There is no banking in our offering and there is no intention to become a bank.
GTR: What comes next?
Ramachandran: I don’t know what we could look like next year, because what we’re doing is so different from anything else that exists. What we’re trying to do is get a live product out on the market, get real customers to use it and see how it evolves with them. When I talk to companies and I tell them, we’d like you to come on, be an early adopter on the platform, I’m very clear: we haven’t spent multiple years building the perfect solution. The company was set up at the end of last year and our first equity injection was in January this year. So we’ve been live as a company for seven and a bit months. What we are building is a minimum viable product and the advantage of coming on as an early adopter is we will develop solutions with you. It’s going to be a very customer-led development, which is different from how large organisations typically build solutions. We know the problem set is real. We know customers experience challenges transacting internationally, finding new relationships, and exchanging information, and the problems expand beyond that to financing, logistics and procurement. We’ve picked a starting point which is to enable companies to showcase their business, helping them manage and build new relationships. That’s our starting point. How we evolve and where we evolve is going to be very user-driven.
A key point is that we are building the platform so that third parties can design solutions on it. We don’t want to own all the products on it. We are effectively building the canvas for companies to connect and then other partners can build a solution on it.
GTR: Why should a company join Serai?
Ramachandran: There aren’t any competing platforms trying to do this. We are not trying to intermediate the relationship between the buyer and the seller; we’re building a canvas that makes it easier for buyers and sellers to connect with each other.
GTR: Will these companies be HSBC clients?
Ramachandran: These are Serai customers. Some of them will obviously bank with HSBC, but it’s not restricted to HSBC customers. There will be no sharing of customer data between HSBC and Serai and vice-versa. What HSBC brings to the table is expertise – we have people that have moved across from the bank. The HSBC connection brings credibility, which is a key factor in convincing companies that what you are building is looking into. That’s where having HSBC’s backing makes a huge difference.
GTR: Why would HSBC back such an initiative?
Ramachandran: Serai is a strategic initiative for the bank, and we have got backing at the highest levels of HSBC. It solves for a big non-banking trade problem that companies around the world are consistently expressing and it’s an opportunity to create a huge amount of value by serving that need.
GTR: What is the objective for Serai?
Ramachandran: What I’d like it to become is the go-to platform for B2B trade because there isn’t one today. We are a team of around 65 people now and there’s an element of working on a really difficult problem with a group of smart people in a fun environment which is really special.