Blog by Enno-Burghard Weitzel, SVP Strategy and Business Development at Surecomp
After another tumultuous year for trade finance in 2021, the industry is set to face a number of challenges as we start 2022 – both old and new. Thanks to new remote working norms introduced by the pandemic, the pace of digitization has accelerated and calls to reduce paper and streamline processes have only grown louder.
Challenges for banks
We see five recurring challenges that major banks are grappling with in trade finance. The first of these is regulation, including topics such as Basel IV, know your customer’s customer (KYCC), and upcoming environmental, social, and governance (ESG) regulations. The second is margin pressure, whether the result of paper-based processes that lead to errors, high handling costs and high turnaround times, or the result of competition from non-bank rivals such as insurance brokers who fall outside of Basel IV. This allows those insurers to offer more attractive terms to banks and corporates, thus creating an uneven playing field. The third biggest pain point is fraud, which we consider the number one economic challenge for banks in trade finance. Not only a strain on margins, fraud can also pose an existential threat to a bank’s entire trade finance business, as Dutch bank ABN-AMRO discovered in 2020.
The fourth biggest challenge for banks is adaption to – and adoption of – digitization. We have a scattered environment with digital islands, multiple access channels and different processes that banks have to manage. And there’s no proposition that has yet gained the traction to evolve as the new next generation platform that everyone needs to join. We also lack standards in the industry from international bodies, and no matter which bodies they are, there’s no API trade finance standard out there yet. And finally, meeting new digital-first customer expectations is a major challenge for banks, but it also represents a major opportunity for Surecomp.
Challenges for corporates
For corporates their biggest pain point is the time-consuming nature of trade finance processes. It just takes ages to get an instrument up and running; some corporates we speak to can spend up to six weeks to get one guarantee applied for and issued. This is just unbearable, and the banks and financial institutions are imposing these timeframes simply because they have no other choice. The second pain point for corporates is the delay, uncertainty and difficulty that comes with managing physical supply chains – which feeds into the third pain point; the scattered nature of communication in trade finance. But the good news is that both these issues can be solved through greater digitization and ‘platformization.’ Midsize corporates could easily work with at least three financiers, some with over twenty. But they won’t log onto twenty different bank portals. Many are sending emails back and forth, deliberately choosing a relatively insecure channel of communication simply because not all banks offer multi-banking standard communications. The trade finance industry is not offering appropriate solutions to these corporates, and we, as partners to the industry, need to come up with relevant solutions to these problems.
Regulatory landscape – ISO 2022, MLETR, ESG
In terms of regulatory changes, Surecomp is preparing to deliver solutions for measures such as ISO 2022, ESG, and the Model Law on Electronic Transferable Records (MLETR). More and more of Surecomp’s clients have been asking for its systems to be updated to ISO 2022, which is something that Surecomp can deliver. The nature of the update will produce more structured data that Surecomp can then leverage for other applications, such as tracking solutions. With ESG for example, we want to come up with tracking information on every single transaction to identify the supplier, buyer, goods and shipping. But who is going to process all these data points? Who is going to bring them together? And how are we going to consume them? It is clear that we need to continue upgrading the level of data and detail that we provide, so there will be new adoption needs in the industry. The question is not when are we there, but rather how can we reduce the cost of adjustment? Answering such questions will be trialled during the next big adjustment, MLETR, which is just around the corner and will hopefully enable us to get rid of paper. The UK is pressing ahead with a lot of energy and movement, and hopefully Germany and Italy will come, and the G7 and eventually the G20 will follow. All participants will then need to be able to consume and manage, update and amend MLETR. With real digital documents, there will be endless adjustment. And for us, the key question is how can we enable all the participants to easily, conveniently adjust to a new system to manage these new data points?
Priorities for 2022
Our number one priority is our clients. I have had so many interesting and insightful conversations with clients which I treat as our guiding light for 2022 and beyond. Together with the clients we’ve overcome the SWIFT Release 21, which was a major blocker in terms of banks being able to focus on their customers’ business. They want to bring solutions to their customers to deliver a better service, and I think that 2022 will see a renewed focus on this.
Surecomp’s focus will be on collaboration, which we believe is the key to successful solutions. No provider out there will solve any of the trade finance problems on their own. At Surecomp we have customers on the corporate side, on the banking side – we serve small, midsize, global leading parties, and that brings a variety of input, a variety of insights, and enables us to bring solutions that build on collaboration and can actually solve problems. We are currently working on a collaborative solution to address the inertia of paper-based guarantees and this is a top priority.
Turning “propositions” into “solutions”
Much of Surecomp’s work will be focused on turning “propositions” into “real solutions” for the pain points described, by making its existing network more accessible and more efficient for both banks and corporates. Technically, we are pushing our solutions to the cloud, with an API application in both communication and integration. The key is that we are technically lowering the barriers to use these solutions, and it’s a full-size solution that we’re now offering, so people can simply sign up. Economically, we are lowering the subscription fees to be really attractive. We are pushing new features, and as it’s a SaaS cloud-based solution, the speed at which features will be added is much higher than before. We will of course maintain our existing on-premise solutions, but the focus is on SaaS, which we believe will enable both corporates and banks to leverage technology in order to drive growth in their business.
Based on a video interview with Trade Finance Global