Ian Kerr, CEO, Bolero International
From London to Chicago and beyond, two significant topics are exciting the finest minds in trade finance. Those topics are the interplay between Fintech firms and banks, and the potential effects of Brexit. Both boil down to boundaries.
Attending the GTR US Trade and Working Capital Conference in Chicago, I experienced significant enthusiasm for trade digitisation and the role of Fintechs in bringing it to the fore. Predictably, some of the larger banks are expressing caution over the viability of the Fintech innovators. Exploring the challenges and opportunities in which Fintechs could make a difference in trade finance was the primary focus of discussions and the general agreement was that a clear gap for them to enter lays in the small and medium-sized sector.
Due to the weight of regulation and compliance, it is still difficult for banks to conduct business that turns a profit in this sector. The consensus is that the Fintechs can step in with their alternative funding sources to supply the demand that banks find difficult to meet for small and medium-sized trading companies. Banks deem many of these smaller companies too small to warrant the amount of time needed to conduct all the necessary compliance checks.
Although heavily regulated, the established banks have a big role to play in developing partnerships with the Fintechs who use different platforms and are currently subject to much lighter-touch supervision. Combining the banks’ positions as trusted partners, intermediaries and sources of capital with the Fintechs’ separate streams of funding and technologically-driven new ways of operating is clearly the way forward.
The big four
For such partnerships to work, there are four key requirements. Firstly, belief in the market opportunity on all sides, rather than a desire simply to exchange logos. Then there must be genuine compatibility in business models so that one-plus-one really will equal three.
The rewards must also be addressed to reflect what the partners are bringing and their level of input. Finally, appropriate resources must be dedicated to the project. A handful of larger trading corporates are already committed to partnerships in this field. Many banks are adopting digitised trade finance documentation platforms, encouraged by the enthusiasm of larger global trading businesses such as Cargill.
Navigating the Brexit boundaries
Here in the UK, views on these partnerships are substantially coloured by Brexit. Discussion at the UK Trade & Export Finance Conference in London certainly reflected that. Notwithstanding that our history of technological innovation in financial services goes back three decades, there are real concerns about our ability to continue on that path so easily if talent cannot travel across borders without hindrance.
The UK will require innovators to make a genuine success of the new open-banking regulations, allowing third-parties access to payments infrastructure and customer data assets so they can develop payments and information services. This is not only a change in regulatory compliance, infrastructure and technology, but also a strategic and operational challenge. Meeting it requires meticulous execution and technological innovation at a time when our banks are still working hard to rebuild their reputations following the banking crisis.
There was still great enthusiasm for the UK’s continuing role as a centre for trade digitisation and financial technology innovation at both events with much praise for the benefits for small and medium-sized exporters. The general consensus is that banks and Fintechs can collaborate to assist these businesses in the high value area of pre-shipment finance and through the use of data to trigger financing decisions.
Brexit does pose a risk to the forward momentum of these developments yet there is a certain grin-and-bear-it attitude. Those with talent and experience in international trade digitisation will find a solution. Digitisation will provide great rewards, provided we can collaborate effectively to grasp them.