African corporates are looking to automate more of their trade finance activities, having already done this with payments, and it is their banks which are leading them into this with online solutions, writes Liz Salecka.


Across several markets in Africa, multinational corporations (MNCs) and large corporates actively using online banking solutions, are now looking to introduce greater automation to their trade and supply chain finance activities.

Large global companies that have deployed centralised Enterprise Resource Planning (ERP) systems with aims to improve cash management efficiencies are now seeking to take advantage of these systems in the trade finance space. Their example is being followed by large local corporates, which are investing in ERP systems and linking them to their online banking and trade finance platforms.

“MNCs are deploying solutions with their ERP providers to support trade financing activities,” explains Yusuf Khan, trade head for Africa at Citi. “These solutions are allowing large corporates to take advantage of supply chain finance modules and connect to banks via a secure, automated straight-through-processing (STP) connection.”

“African corporates are investing much more in their ERP applications and are demanding standardised integration with their bankers. Where they are already taking advantage of ERP integration for online payments, they are now extending this to trade,” adds Jason Barrass, head of Africa trade at Barclays Africa Group.

Meanwhile, at Volante Technologies, Mick Fennell, general manager, MEA, points out that over the past 10 years, corporate payment processing in Africa has moved from paper to electronic banking and then to standard internet banking services. In some markets, it has moved all the way to a more automated, integrated process through the linking of online bank portals with corporate ERP systems.

“Trade finance is now experiencing a similar evolution,” he says. “To a large extent paper is still used, but corporates are now looking to use internet portals to, at least, initiate letters of credit, guarantees and other transactions to support a more sophisticated and real-time exchange of information with their banks. The next step is to further improve workflows by integrating these online portals with their ERP systems to support supply chain financing and increase STP.”


Local banks go online

While global banks, with their advanced online banking platforms, have tended to focus on the foreign branches of MNCs across the continent, large pan-African banks such as Barclays, Standard Bank, Standard Chartered, United Bank of Africa and Ecobank continue to service the needs of local corporates.
“Large local banks in Africa have led the way in terms of supporting corporates with online banking solutions. Global banks have developed globally-unified solutions which cannot deal with the details of individual African markets such as the different regulatory structures that prevail,” explains Barrass.

Smaller indigenous banks are now also stepping-up their game by providing African corporates with online portals and the ability to do STP transactions.
“Local banks are now working on delivering more automation within their trade finance service, and this movement towards improved automation will increase as supply chain financing drives innovation over the next two to three years,” says Fennell. “A lot of these banks did not have the infrastructure to keep up with global banks, or even some of the pan-African banks, but they are now investing in systems that provide portals through which they can capture corporate trade data.”

To meet corporate demand for greater trade finance automation, many pan-African banks and smaller local banks are investing in third-party trade finance solutions, offered by global vendors such as Misys, Banktrade and China Systems.

Barrass points out that one of the key features of the African market is the important role played by these technology solution providers, which offer the trade finance functionality required and can deal with local market nuances. These large vendors can develop bespoke solutions for local banks that accommodate different local market needs in areas such as regulation.

“Some local banks have offered trade finance solutions via their online banking platforms, but there is also high level adoption of large technology vendor platforms for trade,” he says.


Mobile takes off

Mobile technology is now also witnessing fast take-up across Africa, and its widespread adoption looks set to have major implications for how local corporates and their suppliers manage their trade and supply chain finance activities in the future.

“As the adoption of mobile solutions grows, there is definitely an opportunity for its utilisation in the trade finance space for real-time visibility and approvals while on the move,” says Khan, pointing out that Citi’s supplier chain finance platform is available on mobile.

“In Africa there is major support and commitment to the use of mobile solutions because the landline infrastructure is not as advanced as in other parts of the world. As a result, when it comes to trade finance solutions, mobile is really taking off,” adds Fennell.

He points out that corporates are taking advantage of mobile devices such as tablets, which are more suited for sophisticated trade finance activities in comparison to smaller mobile phones or smartphones. While being appropriate for more complex and large trade transactions, such mobile devices also offer practicalities in that they can be used in remote, rural parts of the country by professionals on the move.

“For trade activities that are not heavily information-based there is scope for mobile solutions. However, tablets are more conducive to handling richer trade documents and related information,” concurs Barrass.


A boost for supplier financing

With an increasing number of suppliers in Africa looking to take advantage of supply chain finance, mobile devices, which have a higher level of market penetration across the continent than computers, now present an important means by which these smaller companies can access early finance.

“From a supply chain finance perspective, when it comes to meeting smaller suppliers’ needs, a mobile solution may prove more favourable than an internet-based one,” says Barrass, noting that there is a “huge drive” among smaller suppliers, many of which are struggling to access traditional finance, to realise the benefits of supply chain finance.

“Many suppliers want automated solutions that improve transparency and visibility,” he continues, but adds: “It is likely that more manual solutions will prevail in certain markets.”

Fennell also acknowledges the relevance of supply chain finance for the growing number of small companies across Africa, and explains that they will become more accustomed to using online solutions as they seek access to early and easier finance.

“For Tier 2 and Tier 3 companies, supply chain finance is particularly attractive because it provides them with improved access to credit and greater efficiency in processing,” he says. “There is, however, still a steep learning curve for these smaller entities. They need both educating and encouragement from their local banks.”


A role for BPO

As MNCs and large African corporates seek out automated solutions for trade and supply chain finance, attention is also being focused on how they can take advantage of the bank payment obligation (BPO).

However, despite the publication of globally standardised rules for the BPO earlier this year, any moves to adopt the new instrument remain limited.

A survey of banks, corporates and service providers in Africa, conducted by Volante and Exporta during the first half of 2013, which looked into future planning for the BPO and SWIFT’s MT798 trade finance messaging standard revealed that 70% had no defined plan in place and 60% did not know when they would be implementing either.

“However, one interesting aspect of the survey is that there is a very positive attitude to the BPO: 80% said that they saw the BPO as an opportunity to either save time and money or else generate additional revenue,” says Fennell. “However, so far, there has been a very limited amount of planning taking place – and greater education is needed to provide more concrete knowledge about the BPO so proper plans can be formed for its rollout and support within each organisation.”

“As with any new practices, there is always a real need to educate the market, and this is the case with the BPO,” adds Barrass, noting that ongoing collaboration is needed between the International Chamber of Commerce, Swift and global and large, local banks in explaining the benefits of the BPO to corporates and regional banks in Africa.

“One of the biggest challenges banks face is justifying capital spend before they see demand from corporates. Once corporatews begin to understand the benefits provided by the BPO, they will be at the core of driving this forward.”