Large Asian corporates’ ambitions to make greater use of sophisticated financing structures are leading to an increased take-up of automated front-end solutions.
While a range of ever-more advanced technologies are becoming available to access trade and supply chain finance services online and execute transactions, many Asian companies have yet to shake off their traditional reliance on paper-based processes.
However, there is a growing movement by multinational corporations (MNCs) and large, regional corporates based in Asia’s main trading hubs towards the deployment of the latest electronic front-end solutions, which offer advanced end-user capabilities.
“Generally, corporates in major centres such as Singapore, Hong Kong and Japan are technologically sophisticated, but many suppliers are based in countries such as China, India, Vietnam and Indonesia, and are relatively not as technologically advanced as their counterparts in the major centres,” says Shivkumar Seerapu, regional head of trade finance, Asia Pacific at Deutsche Bank, pointing out that technology is seen as an “important enabler” by most Asian corporates.
Mahadir Manap, director of trade finance, transaction banking, global wholesale banking at Maybank, adds: “In developed areas such as Hong Kong and Singapore, corporates are becoming much more sophisticated in terms of the technology they want to use, but this is not the case in Malaysia, India and even China.”
He explains that, although MNCs based in Malaysia are looking for electronic, converged solutions, at the other end of the scale many SMEs still manage their cash and trade activities with a lot of manual involvement. “Local mid-sized corporates are more interested in how banks can come in and assist them from a financing perspective – and the structure of such financing – rather than the platform itself,” he adds.
Despite this, the tide is now turning as large Asian corporates focus more attention on optimising their working capital cycles.
“As a result many of them are now looking for more sophisticated tools for both working capital management and supply chain finance,” says Gautum Jain, global head of client access at Standard Chartered.
Vineet Harnal, senior product manager, Asia Pacific trade partner bank and channel management at JP Morgan treasury services, adds that regional growth in open account trade and supply chain finance has also called for the use of sophisticated electronic platforms.
“There is definitely an increased interest from corporate clients for online platforms in support of their trade finance activities,” he says, pointing out that, although MNCs have driven demand so far, regional corporates are moving in this direction too. “As their trade portfolio has grown, so has their need for more efficient means of transaction management, including the ability to submit applications electronically and to have robust inquiry and reporting capabilities.”
Similarly, Lloyd Caughey, director, trade and working capital, global transactional services at Westpac Institutional Bank, explains that Asian corporates are becoming more sophisticated in their demands because they recognise a greater need for efficient risk management, reduced costs and processing times, improvements to cash management and more efficient cargo handling and delivery at the port of destination.
Australian corporates, he adds, are also driving demand for electronic trade solutions in Asia. Many of them are now looking to relocate their business functions to other regions, and Singapore is one of the favoured destinations due to tax and other incentives. “These corporate clients want to centralise their document preparation teams and advance to paperless negotiations,” he says.
Looking forward, demographic changes, such as the emergence of a younger, more technologically literate population in certain Asian countries, as well as the strong movement towards the use of online services by retail consumers, are also expected to spearhead further take-up of electronic solutions in the corporate world.
“In countries such as India, Indonesia, Malaysia, Singapore and the Philippines we are definitely seeing the emergence of a younger population, which is more tech-savvy. This will drive more companies to use new technologies,” says Olivier Berthier, global solutions director, transaction banking at Misys. “Changes in consumer retail behaviour are also driving the adoption of new technologies. As access to, and use of these technologies, becomes a common part of daily life, there will be pressures to make their use more widely available.”
Misys itself is currently looking to introduce features to its front-end solution which resemble those used in newer consumer-orientated online services and also offer improved collaboration capabilities. “In the corporate online solutions space we are introducing concepts that have proved successful in the consumer space – even something similar to Twitter,” says Berthier.
Global banks that offer sophisticated front-end solutions for trade as well as cash and FX are in a strong position to meet large Asian corporates’ changing needs.
Many of them are enhancing their front-end solutions on an ongoing basis and are introducing new online features.
JP Morgan, which has offered an internet-based, front-end solution for both traditional trade and supply chain finance for over 10 years, has continued to invest in this platform.
“We also provide our clients with local language and other local capabilities in addition to a single point of entry for both their cash and trade needs,” says Harnal.
Deutsche Bank, meanwhile, is launching a revamped version of its front-end portal for financial supply chain, which will see the addition of multi-country capabilities and end-to-end automated straight-through processing (STP) across supplier financing, accounts-receivables financing and pre-shipment financing.
Another of its key innovations is its Autobahn Apps Market – pieces of software that corporates can download to access a range of electronic services. “This gives corporates the option to download only the applications they want, and hence they benefit from a more user-friendly and modern interface,” explains Seerapu.
Smaller Asian suppliers’ requirements for solutions that are easy to use have also been addressed. One feature offered by Deutsche Bank to suppliers is the upfront option to automatically discount invoices so that they do not have to log on and select invoices for discounting on an ongoing basis.
Regional bank interest
Regional banks have also made much headway in the provision of front-end electronic solutions for both trade and supply chain finance, as have local banks, which are expanding regionally.
Australia’s Westpac has recently invested in systems to facilitate the electronic provision of non-traditional trade products such as supplier finance, receivables financing and inventory finance. “In Australia we provide a full suite of supply chain finance products with online portals for both buyers and suppliers, but in Asia we are currently selectively offering these products to our major customers,” says Caughey.
In Malaysia, meanwhile, Maybank offers a web-based e-trade platform, known as TradeConnex, which it launched in 2009 to provide an alternative delivery channel to
The platform (based on a third party solution from Misys) has also been launched in Labuan and Vietnam, and Maybank plans to roll it out across other parts of Asia over the next two years.
“Although e-trade is not very popular in the less sophisticated Asian markets today, we do expect a growing acceptance in the near future,” says John Wong, managing director, transaction banking, global wholesale banking, who anticipates that TradeConnex’s customer base will quadruple by 2015. “Our front-end solution will help strengthen Maybank’s competitive edge as a regional player in trade and supply chain financing among other banks in Asia.”
A number of other Asian banks are also following this lead by developing electronic solutions for trade.
“At the moment, we are still developing our internet solution for our trade clients,” says Margaret Tjahjono, head of trade product management at Bank Danamon Indonesia. “The need for electronic means is growing. However, trade transactions are still mainly done in a manual manner due to the high complexity of documentation – especially for SME clients.”
Another interesting development is the increased demand for electronic front-end solutions which support the provision of Islamic financing products.
“There is definitely a need for Islamic financing solutions in countries such as Malaysia and Indonesia – and this is two-fold: firstly, for the channel used and, secondly for the underlying product,” says Standard Chartered’s Jain. “We are working with our Islamic banking team in this area to ensure we continue to offer shariah-compliant products to our clients.”
“There is a strong demand for Islamic financing products in Malaysia, and we have invested in a front-end solution, which supports both conventional and Islamic products,” adds Maybank’s Wong. “We are the largest bank in Malaysia to offer Islamic finance, and support for such products was a key requirement when we engaged Misys.”
Mobile trade finance
There are also growing expectations that mobile solutions will soon take off with Asian corporates for certain types of trade transactions.
Standard Chartered was one of the first global banks to enter this space in 2010 with mobile solutions for trade finance that enable corporates to view and authorise letters of credit on the move via iPhone, iPad, Blackberry and Android devices.
According to Jain, downloads of its Straight2Bank mobile applications by corporates and financial institutions have increased 10-fold over the last year.
“The take-up of mobile devices and mobile applications has been far higher in emerging markets than other parts of the world and this is due to the fact that the mobile infrastructure in these economies has leapfrogged the fixed line infrastructure,” he says.
“This is a device that can be used virtually anytime and in any place to access information – without any infrastructure issues.”
Standard Chartered has drawn up a roadmap for the development of its mobile solutions. “At present we are looking at enhancing our offering by introducing more sophisticated dashboards and basic initiation capabilities to the tablet PCs used by our clients to access trade and supply chain finance services,” says Jain.
Third party providers of bank solutions, such as Misys, also recognise huge potential for mobile trade finance in Asia.
“This is happening here much faster than even in Europe,” says Berthier, pointing out that his company has recently added mobile phone capabilities to Misys Trade Portal. “Mobile technologies suit the profile of many entities whose business managers spend quite a lot of time travelling across the region.”
However, some banks are less optimistic about the extent to which mobile solutions have an application in the trade finance world.
Harnal at JP Morgan believes that corporates are unlikely to complete and submit applications for trade instruments via their mobile devices – but may want to review and approve trade transactions this way, as well as receive alerts.
At present, JP Morgan offers its corporate clients email alert and notification services to handheld devices, but it is looking to expand its mobile trade offering to include enquiry, reporting and business intelligence capabilities.
There is also a general consensus among some banks that mobile devices are less suited to trade finance than other transaction banking services.
“We are not yet seeing companies using mobile phones in the trade finance space for payment files, letters of credit and suchlike,” says Seerapu, pointing out that there is a dissimilar picture in the cash space where Deutsche Bank offers a suite of mobile solutions for cash management so that senior finance managers can see their statements and authorise transactions on the move.
Similarly, Calvin Leung, head of trade, North Asia at National Australia Bank (NAB), identifies growing interest in the use of mobile devices for checking account balances, intra and interbank fund transfers and transacting FX. “But in trade finance, which involves the processing of documentation with large volumes of data, the demand is not there at this point in time,” he says, pointing out that the mobile screen is too small to provide instructions on trade finance. Although there may be scope to use it for enquiries and the approval of deals, rather than for execution.
Meanwhile, in Malaysia, Wong points out that there is a lower level of acceptance of internet banking in Asia, and mobile banking is further down the chain.
“Banks are looking for a high level of security, and they are asking for physical documents to be submitted. We are still coming to grips with online applications without physical documents,” he says. “Mobile banking will prove challenging as security issues need to be addressed.”
However, Michael Hogan, head of trade, Asia at NAB, believes that mobile devices, such as the iPad, may provide a useful way of accessing trade information for smaller company entrepreneurs who are always on the move.
“I think this is something that is better targeted at the SME and mid-market segments,” he says. “For major corporates, most authorising decisions are made back in the office by broader teams.”
E-invoicing in Asia
E-invoicing is another emerging trade technology that is capturing the imagination of both MNCs and large corporates globally for the cost savings and efficiencies it can bring by enabling the full automation of receivables receipt and management.
“There is a definitely a need for e-invoicing among large corporates and mid-market companies because of the reporting and integration capabilities it offers and the fact that its use can generate cost savings,” says NAB’s Leung. “But as with front-end banking solutions, we do need to see banks adhering to common standards when developing e-invoicing solutions.”
“There is a requirement for e-invoicing in Asia, but the take-up depends largely on the scale of the businesses involved. In more developed countries, e-invoicing will certainly take-off – it’s just a matter of what triggers that demand tipping point,” adds Tony Sacre, general manager, global head of international payments and FI trade at Commonwealth Bank of Australia (CBA). “However, there are still some critical cross-border and legislative issues that need to be resolved before e-invoicing can become a market reality, and this is particularly the case in countries such as India.”
Similarly, Bank Danamon believes that the size of corporates will be a decisive factor in the movement towards e-invoicing. “We are not really sure on the timing as to it being used by all our customers. We are not only dealing with big corporate clients, but also with SMEs,” says Tjahjono.
At present, the Asian market for e-invoicing products still lags behind that of the western world.
According to a survey conducted by Celent last year, Europe now accounts for 56% of the global e-invoice market, followed by North America (35%) while Asia trails behind with just 7%.
Deutsch Bank’s Seerapu points out that many of the difficulties in Asia relate to its tradition for being a paper-based society. “A key factor here is that even if there are capabilities to transmit invoices electronically, the same invoices will still have to be printed on paper to meet regulatory requirements in areas such as customs and excise,” he says.
Harnal at JP Morgan also points out that certain country specific regulations make it difficult to dematerialise underlying documents, such as the commercial invoice, which is treated as a tax/legal document. “In countries like Singapore, Hong Kong and even Korea, there have been movements in this space. However, in most other locations, e-invoicing is not legally allowed for B2B transactions and requires specific regulatory approval.”
He adds that JP Morgan offers an e-invoicing platform in North America and the United States, and plans to launch this in Asia once there is clear market demand.
However, Jain at Standard Chartered believes that banks themselves should act here and encourage a greater movement towards the use of electronic solutions such as e-invoicing.
“Banks can play a big role by working with regulators to form both processes and policies that will facilitate the move towards a paperless environment,” he says.
Another issue that may impede the take-up of e-invoicing in Asia is the extent to which smaller suppliers, used to paper-based processes, will deploy the technology.
Many global banks are now offering e-invoicing as part of their supply chain finance solutions, and believe that this may provide the catalyst for change.
While such integrated solutions enable larger buyers to fully automate their processes for the entire receipt of invoice to provision of early financing/payments cycle, suppliers benefit from the use of a total solution for sending invoices and accessing supply chain financing. Moreover, as e-invoicing speeds up the transmission of invoices, the latter will be approved by buyers sooner, meaning that suppliers can gain access to supply chain finance even earlier.
“We see e-invoicing as something that should be should be offered as part of the supply chain finance proposition,” says Jain, pointing out that Standard Chartered wants to offer a complete end-to-end, automated solution, which is integrated with the corporate buyer’s ERP systems as well as its proprietary Straight2Bank solution.
“From a smaller company’s perspective, it is not really about whether they should use paper or e-invoicing – it is more about the value they can derive from the electronic solution to their business,” he continues. “Smaller companies’ businesses are much more sensitive to the receivables and payments cycle, and by using e-invoicing they can speed up this cycle, reduce errors and optimise their working capital.”
There are also strong suggestions that, in certain cases, suppliers may feel compelled to adopt e-invoicing.
“Large buyers are in a strong position to request their suppliers to use e-invoicing. If you want to do business with that buyer, then there may be no other choice,” says NAB’s Leung. “It is also possible that some suppliers will be offered incentives such as larger orders in order to support use of the technology.”
“It is certainly the case that large buyers will look to get their smaller suppliers to use e-invoicing. As with anything, where there is one large player involved, they can exert coercion on their suppliers,” adds CBA’s Sacre. “However, this applies equally to the buy and sells side. In some cases, the movement towards e-invoicing may be driven by large buyers, whereas in others it may be large sellers.”
Nevertheless, Deutsche Bank, which has integrated e-invoicing into its supply chain finance offering, is less convinced that this approach has proved its merits.
“We believed that this would make the whole process of invoice transmission, the provision of early finance, and making of payments even smoother,” says Seerapu.
“However, we have found out that the client base for e-invoicing is different to the client base for supply chain finance. One of the main reasons relates to the technological sophistication of suppliers in supply chain finance programmes and their willingness to adopt e-invoicing.
“Generally, e-invoicing is preferred by large sellers, sending out multiple invoices, which want the capability to do this electronically.”