Supply chain feedback
At a recent gathering in Paris, software solutions firm Misys hosted a one-day Global Trade Services Customer Conference. The day ended with a roundtable discussion of various salient issues for the trade finance and supply chain market, chaired by GTR‘s editorial director Rupert Sayer.
- Joseph Barbieri, Senior vice-President, Trade Services & Supply Chain Management, National City
- Robert Beeckx, Manager, Credit & Trade Finance, Arcelor Mittal
- Olivier Berthier, Head of Product Management, Trade Services, Misys Banking
- Hedi Ezzouaoui, Worldwide Director of Financial Markets, Hewlett Packard
- David Hennah, Senior Product Manager, TSU Supply Chain Services, Swift
- Vincent O’Brien, Member, ICC Banking Commission
- Rupert Sayer, Editorial Director, GTR (Chair)
GTR: Do you think that cash, trade and FX should be integrated by banks in a single line of business?
RB: For trade and FX, yes. But for cash management, I”m not so sure – because for big corporates this may end up being a big department. Perhaps a little bit too big. So for really big corporates I don’t think those three should really be integrated in a single line of business. But for small corporates, yes.
HE: The problem we have today is that we would like to reduce the number of banking suppliers we have because we have far too many banking relationships. So if we manage to do it and have banks selected based on their geographic coverage and then specifically by products, it would make sense.
But at the moment I doubt we would benefit from that. Today we can play the competition by having some business given to some banks. It’s a dream that banks have but I don’t think it would have any benefits to us [as corporates].
Our first step is to reduce the number of banking relationships and we are writing some RFIs so we have a single point of access for different countries for a single product.
JB: From a practical perspective I think that regardless of organisational alignment it is critical for banks to behave as if they are a single line of business. And that’s how we view it. There are trade sales specialists, FX specialists and treasury sales specialists yet they all don’t report to the same boss.
But organisationally we make every effort to make sure we are cognoscente of what our customers needs are and from a product development perspective are doing the best that we can to line our developments needs with the broader customer view in mind.
GTR: Is the introduction of Swift TSU going to change the way you support your corporate customers?
DH: The TSU has had the backing of some of the major trade banks in the world from the very beginning. We’ve been very encouraged by the level of take up. Since Sibos last year we had three or four banks signing up every month. I would honestly expect that by the end of the year we would have over 100 banks participating, so the signs are very positive.
I think now we are moving from an environment in which banks no longer want to be followers, they actually want to be leaders and that’s very encouraging.
JB: We are committed to making sure we deliver improved processes and working capital efficiency to clients and we believe the notion of having the TSU is certainly one step that can bring us closer to that organisation.
We believe the TSU will succeed if critical mass develops and if some of the leading banks which control a scale in the industry are committed to driving it. I think it’s also important to look at existing banks that have a proprietary open account solution in place with some of the large corporate relationships and they need to rationalise whether the TSU is a better value proposition versus continuing to monitor and manage that proprietary service they have in place.
I suspect that as the trade world evolves and new players come in, new counterparty relationships occur, there will be opportunities to look at the TSU as a vehicle to take cost out of the process. And we are keen to explore the TSU in the very near future.
RB: We all know what a letter of credit does, what it means, what comfort it can give us and we also know what it would cost us. And that’s the negative point of a letter of credit – it cost too much. My question is, how much banks are going to charge us for this TSU and what would be the added value that we would get compared to the cost that we have to pay today
OB: The TSU is a bank-to-bank mechanism. I don’t think you will know that you are using the TSU. It would be in the background. The one thing that interests me is that a third of the audience here said they don’t know whether the introduction of TSU is going to change the way they support their corporate customers, and that banks still find it hard to know what they are going to do with the TSU.
I feel I’m personally doing David’s work for the past year or so because we ask banks a lot of questions around the TSU and show things that can be built on it, and very often the feedback is “that’s what I can do with the TSU”.
On the banking side, when you are asking banks how much you are going to charge me for this, there is still a bit of a gap, and I don’t think you would be charged anything for this. You most likely would be charged for the value-add services but a direct fee for the TSU – I don’t think this would happen.
RB: I hope so!
GTR: Do you think a bank should add pure supply chain facilities to its existing trade services offering (eg, customs and regulatory compliance)?
HE: We would like to see banks more actively involved in the supply chain. But I’m not sure how keen we would be to open up our operations to our banks. We would like our banks to go and identify for us, in our network, what are the weakest points of our business. And then offer to our suppliers some adequate services taking into account the credit ratings that we have as a big organisation.
If banks could do this they would have an immediate impact on the financial supply chain and our risk management aspect. And in the meantime leave the supply chain to the corporates as it is our core business.
VB: About 15 years ago I left a bank and started working with corporates and got involved heavily in trade finance and documentary credits. I started managing letters of credit and trade finance operations for corporates. I started out with two corporates and then went up to five big corporates in Ireland. I did everything for them – I helped structure the LCs, helped them organise confirmations, and once I started doing that I had to get involved in shipping and then I got involved in compliance, and then customs.
So I had that business for two years, and actually it was successful, I made money but it nearly killed me. Because the job is just so complicated.
JB: I think the very heart of this question is how do we as trade bankers grow and sustain growth.
Perhaps we should begin by not calling ourselves trade bankers anymore. Maybe we are working capital specialists or supply chain specialists.
Fundamentally I think it’s three things: knowing what is the state of your customers, what is the state of your core capabilities, what is the state of your differentiation. If you are not differentiating, whatever you’re offering today is soon to be commoditised. So it’s important that we as bankers look at the supply chain through the careful eyes of shareholders and see if there are really ways for us to do and deliver a better solution.
Perhaps an integrated solution than what’s being provided.
But the value proposition has to be compelling. As Hedi mentioned, there are many competing priorities that corporates are facing so for me to walk in with a new solution, it has to be compelling to convince Hedi and others to change how they work with their existing supply chain and partners.
OB: I’m shocked by the results because there is only a certain number of JPMorgan-Vasteras around the world. I’m surprised and pleased that so many banks think they should go to the custom business and regulatory compliance which indeed are very complicated, new and very far away from the traditional business, from document checking.
What we see more is around partnership. Partnership with logistics companies. But having banks investing significantly in operations which would enable them to do all these complex things – that’s something we haven’t seen much.
RB: Vincent referred to corporates outsourcing LCs, and there are a few banks that provide it such as JPMorgan and Standard Chartered. But if you talk to corporates who try to do it, and I’m one of them, when we tried in Dubai it was a real disaster. I think bankers should stick to their guns.
HE: There are some examples of where banks can work and improve service for corporates. I’m referring to the remittance information which is still not transported by banking systems and clearing houses so you can still fix it.
The other one is all the authorisations or delegation of authority. Today we have to send faxes to the bank to indicate which of our employees is authorised to do payments. There are some levels of automation and identity management which would be welcomed. So I think there are still some improvements to be done to the exiting services before we go down to other services which are not the core business of the bank.
RS: Are we saying that banks shouldn’t invest in these areas because it’s not core and if so what about companies like UPS or certain logistics players who have got a track record and are starting to get into that whole supply chain. Are they better placed
HE: As we are focusing on our core business, banks should do the same, and deliver high quality services at a decent price. I believe this is the real differentiator.
JB: Banks do have access to this data that can help drive additional efficiency for corporates (ie, cash management data that can help do a better job with cash forecasting); this is data sitting in your back office or you have access to. Unlock it! Differentiate by making it available to your clients and you’ll generate more stickiness in your relationship and you’ll be able to put more value that you should be able to deliver.
GTR: Do you think UCP600 will help revive your LC business?
VB: Being honest, the revision of UCP600 is that there aren’t many fundamental changes, and the tough part for banks and corporates is that there aren’t many changes. But there is a restructuring of articles and rules so we’ve haven’t got many choices but to learn – so that’s the bad point.
But there are some improvements and it’s actually giving banks a big chance to interact with corporates again. When I’m doing training sessions with corporates and banks I promote it, I’m focusing on the articles, showing how you can make a bill of lading comply. It’s not much easier but these corporates are so fed up with LCs that now they are looking at it with enthusiasm. You have to convince them that the product works.
Its actually works because the feedback we’re getting from corporates is that UCP600 is fantastic and it’s going to make life easy but actually it doesn’t really do it so much. It does it a little and it will get banks that really want to get back to the business.
But of course, as I said, the market focus is shifting – it’s east and south. If you want to get in to these markets, and you understand the LC market, that’s where you need to go. There’s an evolution here because two years ago, presentations were really and strongly around the supply chain and everything was around matching documents, electronic purchase. That’s still there but the focus is more on intelligence, data and information and on using that information to provide financing on one end and the other and that’s a big step forward; I think that’s where the opportunity is.
Feedback from corporates that deal with two or three LCs a day – they all think it’s absolutely fantastic because I’m selling it well. But when I’m dealing with bankers who really know the business, they say – more could have been done, the rules could actually been simplified, they could have been tightened up.
RB: When I’m being asked about the LC business I always say it’s very simple. You take half a kilo of paper, present it to your bank, and two days later they put money onto your account. And all the rest is nonsense. The UCP400/500/600 will change some minor points, but there is always going to be discussions between the bank and myself and these changes won’t matter.
OB: If there is one thing, and I think David would agree, LCs are still treated in our solution with respect. The LC is still a core product in our solution. And we even try to make the open account flow look like the LC flow.