In the world of trade finance, 2018 has produced great advancement on the technology front. Amongst these developments, blockchain went from proofs of concepts to live transactions, Swift expanded its gpi and Ripple looked to new markets in Asia.
It’s no wonder then that tech was among GTR’s most-read category of stories for the year. Other themes that drew great attention from readers included the decline of traditional trade finance instruments and the rise of trade asset distribution platforms.
As the year comes to a close, we take a look at the GTR website statistics to find out which stories our readers were most interested in.
1. Blockchain platforms go live
After many false dawns, 2018 has finally seen material progress when it comes to blockchain in trade finance. The industry’s interest in blockchain has been significant over the last two years, but it’s only recently started to see the tangible, real-life effect of this technology.
GTR’s most-read story of the year was the news in May that HSBC and ING had completed a live, commercial trade finance transaction on blockchain. This was an important move for what is one of the biggest bank consortia in trade finance, Voltron, a project to digitalise the letter of credit. Voltron was the first trade finance prototype to be showcased by R3 in mid-2017.
However, this wasn’t, the only blockchain project to draw attention in the trade finance space this year. A close second to the Voltron pilot in terms of popularity was the news that the we.trade platform would be made available to clients of nine European banks.
Other popular blockchain stories of the year included one about Ripple’s plans to enter the Chinese market; the decision by a group of ex-Maersk executives to bring cryptocurrency to shipping; and the announcement that major banks and traders had tested a blockchain platform for commodity trade – which has recently become known as komgo.
2. Swift’s gpi – for better or worse
2018 was the second year running for Swift’s global payments innovation (gpi) service, which aims to improve the transparency and speed of international payments. More than half of all cross-border Swift flows are now conducted using this service, with 50% of payments being credited to end beneficiaries within 30 minutes, and close to 100% within 24 hours.
This year, GTR readers were particularly interested in knowing how Swift had improved global payments speeds, even without blockchain. The story showcased some of the first results from what was then just a one-year-old service.
But the criticism that Swift had decided against incorporating blockchain technology into the payments service continued throughout the year. It’s a dilemma that is particularly relevant for Swift – the system which has supported cross-border payments for decades – as it is facing increased competition from providers offering real-time payments based on blockchain. As such, the network’s blockchain rivals also drew much attention on GTR’s website: among this year’s most popular stories was Ripple’s dismissal of the gpi, claiming it is “just a marginal improvement” on “very old architecture”.
3. A supply chain finance model in question
The collapse of British construction firm Carillion made big headlines in the UK earlier this year in what became the largest construction bankruptcy in the country’s corporate history. It also gave rise to a debate in the supply chain finance industry after a report by Fitch Ratings sounded the alarm over current supply chain finance programmes and called for reverse factoring to be classified as debt.
In one of this year’s top stories, GTR looked at the industry’s reactions to this report. The ratings agency claimed that reverse factoring was a key contributor to the collapse, as it “allowed the outsourcer to show an estimated £400-£500mn of debt to financial institutions as ‘other payables’ compared to reported net debt of £219mn”. This suggestion was met with scepticism by industry players.
But the criticism was taken seriously, and the news was followed by an industry effort to tackle the problem and identify “black sheep” in supply chain finance, with the International Trade & Forfaiting Association (ITFA) producing a list of common features to help the payables finance industry identify such “extreme cases”.
4. The decline of traditional trade finance
The move away from traditional trade finance instruments towards open account trading has been continuous over the past decade and is intensifying. It is a trend that is reflected in the trade finance revenues of the world’s top 10 banks, and 2017 marked the fourth successive year of decline.
One of this year’s most popular stories looked closer at this trend, presenting data gathered by analytics company Coalition on the 10 largest transaction banks: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Deutsche Bank, HSBC, JP Morgan, Société Générale, Standard Chartered and Wells Fargo. In particular, the analytics company noted, commodity trade finance “remained challenged, subject to soft demand in a subdued market environment”.
But there is better news for trade finance bankers as they approach the year-end break: more recent figures from Coalition shows that the banks’ trade finance revenues marginally improved over the first half of 2018, bucking the negative trend in the industry for the past half-decade.
5. Trade finance distribution
While trade finance has traditionally been a business for banks only, it is emerging as an asset class with appeal for institutional buyers. It’s an area that innovators are now looking to tap into, with 2018 seeing the entrance of a number of online trade finance distribution platforms and marketplaces for the buying and selling of trade finance assets.
One of them is Tradeteq. GTR’s readers were particularly interested in the news that two former investment bankers, Christoph Gugelmann and Nils Behling, had launched a cloud-based platform that matches trade finance originators with institutional investors. Behling noted at the time that there is a “tremendous demand for trade finance assets on the institutional investor side, but actual volumes traded are still extremely small”.
Another new distribution platform that launched in 2018 is TradeAssets, which also drew much interest on the GTR website. In contrast to Tradeteq, TradeAssets focuses on the distribution of trade assets among banks. Traditionally, buying and selling such assets has been an extremely inefficient process, often done by means of phone, fax and email, which this platform now seeks to streamline.
Season’s greetings from the editorial team!