!css

Learning to love the trade ecosystem

16/09/2019

It is no exaggeration to state that trade is a vast and fragmented ecosystem, involving a wide range of different players across various industries: manufacturers, retailers, customs, transport and logistics, insurers, banks and others. All have a part to play in their interlocking local, regional and global networks.

Despite the enormous progress that technology has enabled over the past 25 years, trade remains a heavily paper-based business. Many outside observers feel it is characterised by an astonishing lack of global standards and a preponderance towards local regulations instead, almost inevitably introducing additional complications across the board.

What every corporate wants

Funding, pricing, quality of service and risk appetite have traditionally been, and will remain, important criteria for corporates when choosing their trading and financing partners.

Corporates expect financial services to be at the right place, at the right time in an easy client journey. We already see this “bankless banking” trend happening in business to consumer (B2C) models which smoothly embed financial services within the underlying business processes. 

In an ideal world, corporates are looking for a united and seamless digital environment to manage their trade flows, enabling them to connect to all stakeholders involved in their supply chain, end-to-end, for tracking goods, financing, payment solutions, managing their purchase orders and invoices, etc. We are not there yet, but this is definitively a goal that banks have to take on board when defining their strategic vision of the future of trade.

New world, new solutions

New digital solutions have emerged to manage trade flows. They are often focused on a single segment of the trade value chain (commercial flows , physical flows or financial flows) and struggle to expand into the others.

Corporates see in this fragmented landscape many of the foundation stones of a new digital ecosystem without being convinced that they can yet see a clear route to an “end-to-end” value proposition.

Some players in the supply chain have started to expand their activities to cover a broader spectrum, as we can see from the introduction of marketplaces providing loans or payment solutions, like Tradeshift or Qupital. This trend is fostered by new ways of conducting business between corporates, but remains far from being the fully integrated ecosystem they would like to have.

Banks are switching the way they operate trade finance products, away from paper-based document management and towards data-driven processes. This enables quicker and safer compliance checks, process automation and better processing times.

We have to speak about blockchain

And, of course, we must speak of blockchain, a very relevant technology for trade and trade finance because of its distributed nature  and its strong native network effect. Several banks have partnered with other banks and IT firms to build digital trade platforms using blockchain with the aim of securing and financing domestic and international trade. We.Trade, Marco Polo and Voltron are just some of the new names on the block.

New business opportunities arise from these new technologies. We.Trade offers to small and mid-sized companies (SMEs) for their intra-European flows the ability to secure transactions which are currently processed on an open account basis: thanks to blockchain smart contracts, partners can agree on the events that will automatically trigger payment and eventually financing.

As a result, transactions are much more secure than in the kind of open account trading that our grandparents might fondly recall. However well you might know your trading partner, history shows the advantage in having anindependent source of support and comfort.

Across the universe

We envisage the emergence of large interconnected trade ecosystems bringing together players from across the trade and supply chain universe, sharing a secure international legal framework and developing global standards across the entire trade value chain.

Common standards, shared legal frameworks and Interoperability of platforms are the three pillars that are absolutely essential to succeed.

As trusted third parties, banks sit on a huge goldmine of data. The combination of such data and artificial intelligence will enable banks to leverage their higher understanding of trade transactions (in tracking and analysing patterns, for example) and to offer new services.

An added complexity is that banks face several hurdles that would-be disruptors do not, in the form of legacy systems, whether in terms of IT, human beings or ossified processes. Corporates want quicker, more transparent and more secure systems and processes, and many do not particularly care about who provides them.

If banks miss that particular train, it is likely that more agile players will include financial services initiation in their ecosystems (as in B2C payments with Amazon’s one-click button or an Adyen card payment-type solution as used by Uber, Netflix and Leboncoin). And banks run the risk of being distanced further from their customers, of losing contextualised data, cross-selling opportunities and simple everyday interactions.

 A clear path to the future

To retain customer loyalty and remain a trusted partner to their corporate clients, banks shall not only focus on building the future of trade around blockchain, data and artificial intelligence. They must also keep steadily investing in improving customer experience and cost-efficiency.

There is a clear path to the future for those who have the vision to see it.

Those who can turn their capacity for vision into effective implementation and execution will have a central role to play in the excitement that lies in wait for us.

 

Come and meet us at Sibos-Stand F131!

Find out more about Societe Generale Wholesale Banking

 

Deputy Head of Trade Services Global Transaction Banking - Societe Generale