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Trade & Supply Chain Finance

Special report September 2014

In this issue: ■ Global heads of trade finance Q&As ■ Securitisation of trade receivables ■ The post-SEPA migration landscape ■ The rise of factoring Your European partner for trade finance and supply chain solutions

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2 Global head interview – Barclays TXF talks to Barclays about the current state of the trade and supply chain finance market. 4 Global head interview – Citi TXF talks to Citi about the current state of the trade and supply chain finance market. 8 Global head interview – HSBC TXF talks to HSBC about the current state of the trade and supply chain finance market. 11 Global heads interview – Lloyds Bank TXF talks to Lloyds Bank about the current state of the trade and supply chain finance market. 14 Global head interview – Santander TXF talks to Santander about the current state of the trade and supply chain Jonathan Bell finance market. Editor-in-chief [email protected] 16 Global head interview – UniCredit TXF talks to UniCredit about the current state of the trade and supply chain Hesham Zakai finance market. Content manager [email protected] 20 Looking at the post-SEPA migration landscape Martin Runow, head of cash management for corporates, Americas, Deutsche Bank, Dalia Gebrial talks about the post-SEPA migration landscape. News, data & events executive [email protected] 23 CGI delivers enhanced products and benefits for banks Jonathan Bell at TXF talks to Kitt Carswell and Frank Tezzi at CGI about the enhanced Dan Sheriff development of CGI’s platform for trade finance banks. Managing director [email protected] 28 Who cares about cash? Prof Michael Henke and Dr David Wuttke analyse the ways that cash is managed Dominik Kloiber throughout the supply chain. Commercial director [email protected] 31 MINTed? Why the BRICS bank has to have a broad remit Rebecca Harding, CEO, Delta Economics provides detailed research on global Max Carter trade flows and trends. Product development director [email protected] 36 Securitisation: an alternative source of corporate liquidity Arnold Alpert, director - deal origination, Finacity, examines how securitisation James Petras programmes can assist corporates in raising liquidity. Chief technology officer [email protected] 41 Entering a new era in commerce and finance André Casterman, global head, corporate and supply chain markets, SWIFT, Alfonso Olivas examines how rapidly digitisation is influencing the trade space. Head of data and analytics [email protected] 44 The rise of factoring in today’s trade landscape Michel Leblanc, deputy vice president, international trade, National Bank of Katy Rose Canada, examines the expansion of factoring as a trade finance tool. Head of marketing [email protected] 47 Ambitious ITFA revamp looks to the future Hesham Zakai reports on changes taking place within the International Forfaiting Mailing address: Association. TXF Canterbury Court 49 Trade finance: in conversation with the masters Kennington Park Alexander Malaket shares insights and observations with Paul Johnson, director, 1-3 Brixton Road senior product manager, BofAML, based in Los Angeles. London SW9 6DE. 53 Quite revolution: bringing trading counterparties closer Tel: +44 (0) 20 3735 5180 Ina Kerr, CEO Bolero International, looks at the growing business case for ePresentation. Registered office: TXF Limited 56 Improving the efficiency of FSCM 7-10 Chandos Street Frank-Oliver Wolf, at Commerzbank, explains how enlightened companies are London adopting a holistic view of financial supply chain management (FSCM). W1G 9DQ. 60 Making trade flow in 2020: the role of payment and finance Registered in England & Wales. Registered No: 08421624 solutions © TXF Limited 2014 Dominic Broom, at BNY Mellon, explores developments in technology, global trade 1 flows, choices of currency, and regulation and examines how they may help oil the Copying without permission of the publisher is prohibited. wheels of global trade. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Global head interview – Barclays

TXF talks with Dan Roberts, global head of trade finance at Barclays Bank in London.

Dan Roberts, global head of trade duction in the global fungibility of are starting out in and developing finance at Barclays Bank. liquidity and capital are only now their careers in trade finance are being absorbed into trade fi- getting enough relevant opera- TXF: What are your views on where nance strategies. As well as regu- tional expertise. the trade finance market is at the lation, there are some potentially Overall, trade finance faces present time, and what do you disruptive technologies coming to some formidable challenges think are the biggest challenges the fore, and the rate of migration around balance sheets, around that the industry faces? from consumer technology into technology and around people. Trade finance is at an exciting corporate mainstream is happen- However, the amount of cross-bor- juncture; most of the regulations ing at an increasing pace. der trade will continue to grow are now known but the industry is Career paths and demo- and trade finance is a very frag- still adapting to Basel III, AML/KYC graphics within the industry itself mented market – so there are regulations, ring-fencing and reso- are also changing – in particular, plenty of opportunities for growth lution regimes, amongst other we as an industry really have to for the banks that adapt well to things. The impact in terms of re- make sure that young people who the changing environment.

TXF: Has the, or will the, cost of providing trade finance increase We have been talking for years about due to the greater pressure and requirements from regulators and convergence of consumer and those related to compliance? corporate technology in financial No. In theory prices should have risen (and supply should have services driving digitalisation of the fallen) due to the higher costs; in trade industry, and I think we’re now practice, the impact of monetary at the point where we’re going to start policy has created an abun- 2 dance of liquidity looking for a seeing it happen. home, which has pushed margins

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down. It is not clear what will trig- ger a reversal in pricing trends to more fundamental pricing levels; my guess would be either a geo- political shock or the eventual re- versal of QE in the US.

TXF: What position is the bank tak- ing in regard to servicing new clients as well as SMEs? We are always looking to build re- lationships with new trade clients across our core client groups: busi- nesses of all sizes in the UK and Africa, global corporates and global financial institutions. Dan Roberts, global head of trade finance at Barclays Bank in London.

can develop even more innova- way for our clients. Where appropri- TXF: What do you see your clients tion going forward. Barclays has a ate, we partner on doc trade (net- asking for now that is different strong track record of technology work guarantees, L/C reissuance) from the past? Do you see a differ- innovation across multiple product and on large transactions. ent attitude from corporates? areas, and we believe that there Client expectations are changing. are a lot of opportunities to deliver TXF: Where do you see Barclays Clients are now asking for more valuable, effective solutions that making a push in trade finance – provision of information, better will benefit our trade clients as product and/or region? Do you customer service (faster turn- well. see the bank as having certain around, less tolerance for error) niche strengths? and expect more integrated front- TXF: It is over 18 months on now We will be growing our business in end technologies. They are also in- since the official launch of the our four core client segments: UK, terested in being able to have Bank Payment Obligation (BPO) Africa, global corporates and customisable, simplified non-pro- from SWIFT, what is your view of the global financial institutions. Our in- prietary yet secure access to their initiative, what if anything is hold- vestments in technology will build bank. ing it back and how important do on our strengths in doc trade. The you think it will be? jewel in our crown today is our re- TXF: Technology within trade has Overall, the concept remains ap- ceivables finance capability, and grown massively over the last few pealing, but at this stage corpo- we’re seeing strong growth in the years. What sort of investment has rate take up rates remain slow. If space. Barclays made in this area and end-user, by which I mean corpo- what do you still need to do? How rate, demand picks up, I think BPO TXF: What do you think the next do you view the bank’s trade should emerge as one of the big thing in trade will be? technology offering in compari- growth products. We have been talking for years son to other institutions? about convergence of consumer Indeed. We are investing in tech- TXF: Is Barclays teaming with other and corporate technology in fi- nology to digitise the front-end FIs, and if so why and how does this nancial services driving digitalisa- and front office, automate back- make a difference for your clients? tion of the trade industry, and I end processes to improve client Yes. We do this to ensure we pro- think we’re now at the point experience, reduce costs and vide maximum network coverage where we’re going to start seeing maintain high quality controls, and 3 in the simplest and most effective it happen. ■ build a platform from which we www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Global head interview – Citi

Jonathan Bell talks with John Ahearn, global head of trade at Citi.

John Ahearn, global head of trade We are observing that Basel III ratio. Citi is prepared for Basel III. at Citi. is making the industry rethink how it uses balance sheets. There are TXF: Has the, or will the, cost of TXF: What are your views on where new requirements such as the sup- providing trade finance increase the trade finance market is at the plemental leverage ratio ‘back- due to the greater pressure and present time, and what do you stop’, which can curb asset requirements from regulators and think are the biggest challenges growth. Finally, compliance, sover- those related to compliance? that the industry faces? eign and credit risk can be chal- Basel IIl introduces radical The trade industry is at an inflec- lenging. changes in capital rules, new liq- tion point – liquidity matters. uidity and leverage ratios as well We must adapt, reinvent our busi- TXF: How is the bank responding as additional rules for global sys- ness and collaborate to remain and dealing with the ever-in- temically important banks. It in- relevant. creasing demands of regulators – creases the quality and quantity The current market pricing is both nationally and internation- of bank capital. This undoubtedly unrealistic. Capital costs have ally? Is Citi completely provi- has implications for pricing across risen significantly and are not sioned for Basel III? all products, client sectors and re- reflected in current market prices. Citi is highly focused on allocation gions, especially for: ECA financ- There is massive liquidity still of resources and capital returns in ing, emerging markets, FIs, SME being injected into the market by order to exceed Basel’s new cap- and non-investment grade clients. central banks. In many markets, ital ratios including Tier I, common There are also new measures current pricing levels do not meet ratios, liquidity coverage ratio for liquidity (liquidity coverage required hurdles. (LCR) and supplemental leverage ratio – LCR, and net stable funding

The trade industry is at an inflection point – liquidity matters. We must adapt, reinvent our business and collaborate to remain relevant. 4

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ration – NSFR) that will impact de- (credit and PRI) by the bank posit pricing, depending on the greater or less now than in the re- sources of deposits. cent past? Additionally, compliance is be- In specific geographies insurance coming increasingly complex with has been vital. The private market continued strengthening of KYC, is a very large and diverse insur- AML and other regulatory require- ance market place with a number ments, all of which cumulatively in- of new players entering the arena, crease the costs associated with creating a competitive platform trade finance. for clients. Banks are now the biggest TXF: What position is the bank tak- buyers of non-payment insurance ing in regard to servicing new in the private insurance market. clients as well as SMEs? The insurance market has been Trade finance is playing an in- flexible in its ability to work with creasingly important role in the banks and cater for their require- SME market as a significant portion John Ahearn, global head of trade at ments, for example, amending of SMEs are part of large corpo- Citi wordings so they are Basel II/III rates’ supply chain. Citi is commit- compliant (depending on individ- ted to leverage its unparalleled nature with our corporate clients, ual banks’ approach to the regu- global network and trade capa- and our dialogue is much broader lations). bilities to help SMEs optimise the fi- covering a large spectrum, includ- There are many reasons why nancing of their working capital ing export agency finance, sales banks might buy political risk and cycle. In addition to providing tra- and distributor finance, supplier fi- trade credit insurance including: ditional trade import and export nance, account receivables fi- ● Relieving pressure on regula- services to our SME clients globally, nance, document outsourcing tory capital: under Basel II/III, Citi has helped provide access to etc. In addition, we have reposi- most FIs recognise CCI as a lower cost financing to SMEs tioned our traditional LC offerings regulatory capital risk mitigant across the world through its award as part of a streamlined and digi- ● Reducing risk weighted assets winning supplier finance solutions. tised interaction with the bank to ● Managing credit portfolios Citi supports over 38,000 SME sup- support our clients’ continuum of ● Improving the return on indi- pliers through its supplier finance procurement, work in progress and vidual transactions programmes. sales activities. ● Relieving country aggregation Given all the disruptions in mar- limits TXF: What do you see your clients kets over the recent years, there ● Relieving counterparty aggre- asking for now that is different has been a greater recognition of gation limits. from the past? Do you see a differ- the importance of trade from our ent attitude from corporates? corporate customers, as they think TXF: Given increasing supply The major difference centres on much more carefully about the chain complexities, with an ever the fundamental transformation of structure of their balance sheets, increasing number of participants how trade has evolved at Citi. Be- as well as the funding strategies in global supply chains, what are fore 2004, discussions centered on and strengths of the balance you doing now that may be differ- various forms of letters of credit sheets of their trading partners. This ent from the past to assess corpo- (LC’s) and collections and tended in turn has created much stronger rate/counterparty risk factors? to be very specific in scope with a engagement and knowledge Citi continuously looks to improve narrower buying center within the around trade in all its forms. on its risk management best prac- corporate customer. Today, trade tices, which evolve constantly 5 has taken on a much more holistic TXF: Is the use of insurance sector across geographies and products. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

A key focus of Citi trade is making parison to other institutions? lenge is the shortage of legal sure that we apply the latest We’ve made substantial technol- framework for this instrument. We guidelines and stay ahead of ogy investments towards our Ci- are paying close attention to both counterparty risk, which is an in- tiDirect front end, insourcing the market adoption and client in- herent part of our business model capabilities, digitisation of trade terest in this capability. globally. While the assessment of documents, globalising our supply counterparty risk is an ongoing chain finance solution and mobile TXF: Is Citi teaming with other FIs, process that looks to capture all applications; all of which support and if so why and how does this aspects of the relationship with our underlying corporate and FI make a difference for your the customer, Citi trade is particu- customers. Based on our research, clients? larly focused on the electronic val- we believe Citi invests more in As a leader in syndicated facilities, idation of trade data. technology annually than many we support clients with large infra- As a business, we have under- trade banks make in annual rev- structure deals. Through our distri- taken a worldwide effort to transi- enue. bution desk, or the export credit tion from paper-based processing, agencies team, we have facili- still dominant in the letters of credit TXF: It has been over 18 months tated over $50 billion in transac- space for instance, to the elec- since the official launch of the tions this year. tronic transfer of data via pre-for- Bank Payment Obligation (BPO) matted file exchange. This from SWIFT. What is your view of TXF: Citi has had considerable transition is a very significant en- the initiative, what if anything is success with its initial trade secu- deavour that will continue in the holding it back, and how impor- ritisation programme. What is the years to come. We believe that tant do you think it will be? next step in this arena for you? Citi is at the forefront of this effort Citi was an early supporter of the Trade MAPS has been an im- and is in an ideal position to de- BPO, as we saw the steady growth mensely valuable defease plat- liver to its clients the significant in open account trade flows. We form for both Citi and Santander. It benefits resulting from this funda- have successfully completed a has enabled us to offer trade fi- mental transformation. proof of concept by using the TSU nance assets as a new asset class (Trade Service Utility) as the to a completely new group of in- TXF: Technology within trade matching engine to compare pur- vestors, who otherwise would not has grown massively over the last chase order/invoice data fields. purchase this asset type. We cre- few years. What sort of investment The biggest challenge for banks ated this new ABS asset class and has Citi made in this area and will be to enhance existing client were able to tap into the tradi- what do you still need to do? portals with required BPO data tional ABS investor group. How do you view the bank’s fields to facilitate full end-to-end We are already actively trade technology offering in com- automation. The other big chal- preparing for a second issuance

We’ve made substantial technology investments towards our CitiDirect front end, insourcing capabilities, digitisation of trade documents, globalising our supply chain finance solution and mobile applications; all of which support our 6 underlying corporate and FI customers.

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along with our partner Santander. tions continue to see growth. We see increased sales to nontradi- In addition, we are working with a are also exploring balance sheet tional investors rather than prima- few global trade banks, as well as friendly solutions to assist our rily bank to bank risk distribution. a few select regional trade banks, global clients in expanding sales in Industry collaboration includ- for additional future issuances. rapid growth markets. ing Trade MAPS, ICC Register and Considerable efforts and re- BAFT’s London group: this collabo- sources are required for any secu- TXF: What do you think the next ration will help create industry def- ritisation issuance, and more so for big thing in trade will be? initions, solutions for risk distribution the first time issuers with whom we We think there will be acceleration and broaden the appeal of trade are currently working with. of trade bank consolidation – al- assets to new types of investors, We view the Trade MAPS plat- ready the top three banks have such as insurance companies and form as a viable option for trade gained five points of market share pension funds. banks to effectively manage their since 2008. Trade outsourcing solutions for growing balance sheet and Capital rules make it harder for bank partners: this includes various achieve the host of reliefs/benefits banks to compete, especially programmes ranging from tradi- associated with the programme: those without operations scale tional LC relay/reissuance pro- funding, capital, credit, etc. We and large global networks. Banks grammes to full outsourcing of created this platform for multi without access to US dollar fund- operations and technology. How- bank use so we will encourage ing will struggle, and banks who ever, this can also include risk distri- other banks to partner with us on don’t consider trade to be core bution solutions to help banks move future issuance. will reinvest their limited capital capital off-balance sheet to in- elsewhere. Regional and local vestors. Solutions will be structured TXF: Where do you see Citi making banks will need to create partner- to allow partner banks to retain a push in trade finance – product ships with leading trade banks to customer relationship and credit and/or region? Do you see the continue to participate in the sec- decisions while leveraging our bank as having certain niche tor. scale, efficiency, infrastructure, risk strengths? We see the emergence of new distribution and other capabilities Globally, the business is driven by risk distribution strategies with to improve their trade economics, cross border commercial trade banks acting as intermediaries be- despite challenging macro eco- and alternative financing options. tween corporates and investors. nomic and regulatory environ- Citi’s strength is financing cross No longer can we all just ‘book ment. border flows, leveraging our global and hold’. Originate to distribute foot print and customer base. With will be the new model. This also TXF: What, if any, is your favourite global trade continuing to move means increased sale of assets on football/rugby/baseball team? from letters of credit to open ac- a funded basis, and decreased NY Mets because they play in Citi count, our receivable based solu- use of unfunded sales. We will also Field. ■

Industry collaboration including Trade MAPS, ICC Register and BAFT’s London group: this collaboration will help create industry definitions, solutions for risk distribution and broaden the appeal of trade assets to new types of investors, such as insurance companies and pension funds. 7 www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Global head interview – HSBC

TXF talks with Stuart Tait, global head of trade and trade receivables at HSBC.

Stuart Tait, global head of trade moving into new markets. – and we welcomed Basel’s deci- and trade receivables at HSBC. There is also cause for opti- sion to lower the capital require- mism. HSBC research shows that ments for trade finance. The next TXF: You have just recently taken global trade is picking up momen- step is to continue the discussions over the reigns as global head of tum following two years of very to ensure regulatory coherence. the bank’s global trade and re- sluggish growth. We anticipate the With a total capital ratio of 14.2% ceivables division. What are your value of merchandise trade will at end of June 2014, HSBC has ap- views on where the trade finance build steadily to 8% per year by propriate levels of capital to sup- market is at the present time, and 2016, up from just 2.5% in 2013. In port its business strategy and meet what do you think are the biggest particular businesses in cyclical its regulatory requirements. challenges that the industry sectors, such as transport equip- It is also important the industry faces? ment and metals, stand to benefit continues to support policy mak- Trade finance is closely linked to the greatest from the upturn. ers’ understanding of the pivotal the real economy, so there will al- role trade finance plays within the ways be challenges, whether eco- TXF: How is the bank responding global system of trade. Last year, nomic cycles, political instability or and dealing with the ever-in- the Federal Reserve Bank of New structural reform. creasing demands of regulators – York described the critical role It has been a tough few years both nationally and internation- that banks play “in facilitating in- for the trade finance market, with ally? Is HSBC completely provi- ternational trade by guaranteeing slower trade volumes and an in- sioned for Basel III? international payments and … re- creasingly complex regulatory en- The global financial crisis has ducing the risk of trade transac- vironment. However, these factors rightly led to a reinforced regula- tions”. Without a reliable have also made trade finance tory framework, aimed at making international trade finance net- more relevant in the banking land- the financial system safer. It is im- work, exporters and importers scape, as businesses look for bet- portant to ensure that there is a would face greater risk and incur 8 ter ways to optimise their working recognition of the low risk and self- higher day-to-day business costs. capital, particularly when they are liquidating nature of trade finance In some instances, without trade fi-

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nance, a deal could not take through the world’s global supply place at all – particularly if one of chains. the parties is considered to be higher risk. These effects would be TXF: What areas of global trade – felt disproportionately in emerging product and delivery wise, as op- regions and by SMEs, for whom posed to global/regional – do you trade finance offers an indispensa- think you still need to improve on? ble form of collateral. We are looking at the world through the lense of a corporate TXF: Some three years ago, the treasurer. This means focusing on bank merged the trade and re- working capital efficiency and ceivables business. What has this defining clear propositions using meant in terms of organising your existing products such as pay- staff/teams, and how has this ments and cash management, helped your clients? trade and receivables and FX. Also Merging our trade and receiv- Stuart Tait, global head of trade and expect to see HSBC making more trade receivables at HSBC. ables finance businesses has of its international footprint deliver- made it easier for our customers to ing solutions, such as supply chain do business with us. We have also ing on building out our global for- across multiple geographies. been consolidating our operating faiting and risk distribution capa- platforms for Receivables Finance bilities using a ‘follow-the-sun’ TXF: The bank has made a positive into regional hubs, with Europe model, from Asia, through Europe effort to deliver more finance, par- and Asia completed in the first half and into the Americas. ticularly working capital to corpo- of 2014. This means we have the rates in the SME sector. How ability to deploy these capabilities TXF: Trade is very much at the successful has this been? With rapidly, providing better risk man- core of the bank’s offering; where many banks increasingly focused agement and lower operating do you think you cast an edge or on established clients, how inter- costs. We can also provide our advantage over your biggest ested is the bank in being ap- customers with a more consistent competitors? proached by new clients? offering, especially as supply GTRF is core to HSBC’s future HSBC is committed to support its chains become longer and more growth and a priority investment business banking customers, and complex. area for the Group Board. This in 2013 we launched a series of We have also built on our exist- leading position has been funds to help small and medium- ing network to leverage our com- achieved through two unrivalled sized enterprises with international modities and structured trade advantages: our global network ambitions. SME funds were set up finance capability – covering and our customer base. We are in the UK, Egypt, Malta, Turkey, global value chains from both pro- positioned at either end of the top France, Mexico, the USA, the UAE ducing countries and consuming 20 trade corridors and with a and Canada. A total of $13.3 bil- markets. We now have a team of strong foothold in emerging lion was made available to smaller experts in the main producing, economies, our global connectiv- companies last year. trading and consuming nations, ity gives us access to 87% of the HSBC finances businesses of all across Europe, Asia, Latin America, world’s trade flows. This competi- sizes – from the smaller SME to MENA and will soon have a North tive edge has been gained over multinationals – and we have busi- American team. decades and is difficult to ness development managers in Finally, thinking about the way replicate. Secondly, our extensive markets across the world talking to trade finance will continue to de- customer base – from the existing and potential customers velop, with greater interest in trade smaller SME to multinationals – every day. In short, we are very 9 finance assets, we are concentrat- means we bank companies right much open to new business. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

TXF: Technology within trade has clients are asking more questions for better education on the RMB. grown massively over the last few about BPO. We anticipate that But the outlook for future RMB use years. What sort of investment has growth of interest amongst corpo- is positive. Overall, 59% of decision- HSBC made in this area and what rates will accelerate as the BPO makers surveyed said they plan to do you still need to do? ecosystem develops and is com- increase their cross-border activity As the world becomes more inter- mercialised. HSBC aims to offer with mainland China over the next connected and companies grow Bank Payment Obligations in 2015. 12 months, rising to 86% in the UK, in scale and complexity, and in 74% in Canada, 73% in the UAE which supply chains can span TXF: HSBC has been one of the and 63% in France. With RMB ca- multiple geographies, thousands banks at the forefront of renminbi pabilities across 53 markets, we of buyers and suppliers expect (RMB) utilisation within global fully support our customers in un- their banks to offer multi-regional, trade. How advanced is this? With derstanding and making the most multi-currency and multi-lan- full internationalisation of the RMB of the benefits of the internation- guage in a single technology plat- some years off, is the RMB as a alisation of the Chinese currency. form. To meet those needs, we global trade currency being over- have significantly invested in tech- played? TXF: What do you think the next nology over the past couple of We believe the renminbi (RMB) will big thing in trade will be? What years. An example of that is the continue to be a driving force in and where will be the big trade launch of ‘supply chain solutions, global trade. The first stage of flows of the future? approved invoice’ (SCS-AI) to China’s three-stage plan for the We’re optimistic about the outlook help corporate clients manage renminbi – to establish it as a trade for trade. We believe global trade their global supply chains effec- currency – is already well-ad- will grow faster than world GDP, tively and strengthen their supplier vanced. The proportion of China’s driven by the long-term funda- relationships. SCS-AI was made total trade settled on renminbi has mentals we’re seeing in the emerg- available to clients in 2013 from increased from 3% in 2010 to 18% ing markets. Urbanisation and three key hubs in Europe, Asia and in 2013. We expect it to reach 30 infrastructure needs, and the emer- the US. Local solutions were per cent within a couple of years. gence of a truly global middle launched in India and Indonesia And at the end of 2013, according class – we expect three billion peo- in early 2014. to SWIFT, the renminbi overtook the ple to join the middle classes by Today, traditional trade is euro as the number two trade cur- 2050 – will create significant oppor- largely dominated by manual, rency in the world. tunities. Billions of new consumers paper-based processes. This pres- It is also recognised that using will be hungry for brands and de- ents enormous opportunity for in- the RMB is a competitive edge for veloping wider diets. We can also creased efficiencies, which will be businesses doing business with expect South-South trade flows to facilitated by the development of China. Having said that, it’s also receive further boost, with, most no- technology. fair to say the benefits of trading in tably, Latin America's commodities the RMB have not been fully un- production growth which happens TXF: It has been over 18 months derstood in most countries. Re- on the back of China, and India's now since the official launch of search carried out by HSBC in July appetite for raw materials. And the Bank Payment Obligation this year found that only 22% of more developed economies will (BPO) from SWIFT. What is your businesses currently use the RMB. undoubtedly benefit from the ex- view of the initiative, what if any- Half of respondents from Singa- panding middle classes in the thing is holding it back and how pore, 44% from the US and 42% faster-developing markets. important do you think it will be? from the UK said they believe RMB HSBC continues to invest in BPO usage brings financial benefits, yet TXF: What, if any, is your favourite capabilities. Market interest is cer- less than a third of their German football/rugby team? 10 tainly developing, but the uptake and Canadian peers share this No hesitation, it’s the England is still maturing as large corporate view. This data highlights the need rugby team. ■

www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Global head interview – Lloyds Bank

TXF talks with Jackie Keogh, MD, trade and supply chain, Lloyds Bank Commercial Banking.

Jackie Keogh, MD, trade and sup- trade. My first impression after join- with some key external hires and ply chain, Lloyds Bank Commer- ing the group was that trade was internal upskilling. We are in the cial Banking one of its best kept secrets. We midst of a multi-year, multi-million have made major strides to build pound infrastructure investment TXF: One year on from taking over knowledge and confidence inter- programme on both our tradi- the reigns of global trade at Lloyds nally but we need to now capi- tional trade and open account Bank, what do you see as the talise on this with our clients and platforms. The challenge we face main challenges you have had to the industry at large. is ensuring we invest wisely to face, and possibly still face in The second is that the bank achieve the greatest client bene- transaction banking? has and continues to make signifi- fit, whilst not taking our eye off the Two challenges spring to mind. The cant investments in the trade and ball and thereby ensuring we con- first is the need to build Lloyds supply chain business. Our team tinue to meet client needs on a Banking Group’s reputation in has grown in numbers and quality day-to-day basis.

As an increasing number of SMEs expand into export markets they expect the same level of capability and service whether the transaction is domestic or international. 11

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TXF: How do you see the position of the bank with the ever bigger burden of regulatory change, both national and international? How have these impacted your trade proposition, and do you feel the bank is well placed to service clients in the way you want? It goes without saying that regula- tion comes with a cost, whether that is to capital or through the in- creased governance it requires and, as such, it can make some banks more conservative and re- duce choice for clients. However the regulators’ focus on increasing transparency for Jackie Keogh, MD, trade and supply chain, Lloyds Bank Commercial Banking clients around areas such as price and terms & conditions can only be welcomed as it strengthens tion support and less tolerance of all aspects of the trade and supply client relationships. I personally be- organisational silos getting in the chain business, both front and lieve that going forward banks way of an integrated supply chain back office, from people, platform, who lead the way on trans- proposition. Likewise it is no longer processes, to products. The client parency may actually gain a just the very large global corpo- proposition now includes both tra- competitive advantage. rates that look to benefit from off ditional trade and open account, Some regulations, particularly balance sheet treatment. Mid addressing both payables and re- those that result in inconsistency market clients now demand the ceivables. Finding the right bal- by geography, can be detrimental same downstream, e.g. supplier fi- ance on technology and platform to clients as it creates an uneven nance, and upstream, e.g. receiv- when undertaking this type of playing field and greater confu- able purchase, offering as their change is an ongoing endeavour sion for clients. larger counterparts. and often the question relates more to what can be absorbed TXF: What are your clients asking TXF: What changes has the bank rather than should we do more. for now that is different from the re- made to its back office to help the cent past? What changes are you trade finance provision, and do TXF: Is Lloyds Bank embracing the seeing in their requirements? you think the bank has the right Bank Payment Obligation (BPO), As an increasing number of SMEs balance in terms of technology and how do you see the future de- expand into export markets they and trade finance platform invest- velopment of this SWIFT initiative? expect the same level of capabil- ment? Lloyds Banking Group is taking a ity and service whether the trans- At the end of 2013 Lloyds Banking watching brief on the BPO. We action is domestic or international. Group took the strategic decision continue to gain insights on client Whilst they appreciate the com- to combine their transaction needs and there is a keen interest plexity of different regulation and banking and commercial finance in innovative solutions. Having practices, they consider resolving divisions. 2014 has been a year of been personally involved in the these issues seamlessly as a role of converting the ambition of deliv- BPO in my time at SWIFT, I remain their bank. ering a true working capital prod- confident that industry standards 12 We are seeing greater client uct-agnostic vision into reality. are required in the open account demand for end-to-end transac- This major undertaking impacts space. Whether the current ver-

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sion of the BPO is the answer or not pledges on Access to finance – we bilateral interest. However the is yet to be seen. At some point, promise to make more money growth in trade securitisation does hopefully in the not too distant fu- available for SMEs, and more easily; offer attractive future potential ture, the BPO, or a similar proposi- Transparency – we promise to be when the need arises. tion, will reach a tipping point and clear about the terms on which we With greater pressure on capi- the network effect will drive wide lend and the decisions we make; tal banks will continue to seek adoption. Support – we promise to provide a ways to allow them to free up ca- wide range of help to businesses, pacity to serve their clients. What TXF: In what ways are you coop- whatever their stage of growth. remains to be seen is how appeal- erating with other financial institu- ing these assets will be to investors tions, and how do you see this TXF: What other target areas does when interest rates are less stable helping your corporate clients? the bank have for trade finance and returns can be achieved in In common with all financial going forward? their traditional asset classes. institutions that don’t have a true A focus area for trade finance at global network, we rely on our the bank going forward is to en- TXF: What do you see as the next key relationship banks and corre- hance our propositions by industry big development in trade finance? spondents to help support our sector so that we can target client That’s a tough question. The letter corporate clients’ global needs. pain points as market dynamics of credit has been around ‘for- The nature of our cooperation shift away from a highly liquid en- ever’ and has been forecast to varies based on the type of serv- vironment. This requires a deep die for decades. New instruments ice and level of integration re- knowledge of all players in the appear but are they new or just quired but is always driven by supply chain in order to drive ben- old products repackaged? It has client demand. efit for our clients well beyond their been argued that supplier finance With increased costs of KYC, own balance sheet. is merely reverse factoring. In that banks are becoming even more context Dynamic Discounting is selective regarding which FI rela- TXFL Is the bank looking at securi- worth watching. tionships they leverage and in- tisation programmes for trade re- Beyond the product perspec- creasingly they now seek to ceivables at any level, and do you tive we can’t ignore the growth in develop stronger ties with like- see this as the best way for trade RMB in trade. The Chinese econ- minded institutions. Going forward banks to move assets off balance omy has slowed down and with it I can see the need to put more sheet? the pressure to switch to RMB. But rigour around customer service to Currently Lloyds Banking Group banks and corporate clients that deliver a consistent client experi- has sufficient client and country have not equipped themselves ence as products lose any real dif- appetite to take and hold assets. with both the infrastructure and ferentiation. When pressure points are reached flow of information may find them- we continue to attract adequate selves lacking. ■ TXF: With many banks sticking to big corporates and relationship clients, is Lloyds making positive moves to finance more in the SME sector and/or new clients? Beyond the product perspective We are proud to be the leading we can’t ignore the growth in RMB UK bank in the SME segment and as part of our commitment to in trade. The Chinese economy ‘helping Britain prosper’ we con- has slowed down and with it the tinue to expand our lending to this key client segment. pressure to switch to RMB. 13 Our SME charter makes public www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Global head interview – Santander

Jonathan Bell talks with Jose Luis Calderon, global head of global transaction banking at Santander.

Jose Luis Calderon, global head of ucts have been successfully ply chain finance solutions avail- global transaction banking at launched in recent years, and able, and the provision of those, Santander. they are maturing. The pricing sufficient to meet the demands of pressure in mature markets is corporate treasurers? TXF: What state do you view the largely compensated for by the We think the current product offer- trade finance sector in at the pres- new income generators. ing covers large parts of the sup- ent time – and how is Santander’s ply chain and it’s proven that global transaction banking busi- TXF: What do you see as the banks have provided the market ness developing? biggest challenges to the provi- with competitive solutions to im- Despite the financial crisis, trade fi- sion of trade finance today, and prove working capital. Neverthe- nance is growing at a faster pace what as a bank are you doing less, there is obviously still room to than GDP. about it? improve in some fields (e.g. e-in- Most banks are investing in The main challenges are risk as- voicing, reconciliation, etc). trade finance and supply chain fi- sessment and compliance costs, nance. That proves the business and the increasing fragmentation TXF: What additional tools are you case and the positive outlook. of the corporate supply chains. employing to assess corporate Santander is growing in all its risk? And are you using the private core geographies thanks to a TXF: With global supply chains insurance market more so now larger product offering. New prod- ever-more complex, are the sup- than in the past? If so, what type

New products have been successfully launched in recent years and they are maturing. The pricing pressure in mature markets is largely compensated 14 by the new income generators.

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of products are you sourcing? our trade finance business. We deployed a new system called Trade Asset Mobilisation, including TXF: How much is technology/ comprehensive insurance cover- tech innovation helping the provi- age, multilaterals, private investors- sion of trade and supply chain fi- distributions (Trade MAPS and nance? Have tech innovations other investment vehicles), on top delivered? What further opportu- of the regular banking distribution. nities do you see to improve effi- We believe this initiative is ahead ciency and your offering to of the curve and will be a market clients? trend. We are lucky that our platforms have been built over the course of TXF: How do you see the introduc- many years, with real business tion of the BPO (Bank Payment needs and not as ‘proof of con- Obligation) helping your bank ex- cept’ in a laboratory. They have tend supply chain finance serv- Jose Luis Calderon, global head of provided solutions to real cus- global transaction banking at ices for corporate clients? Santander tomers’ demands over many It will continue on a slow path until years, and this is a key success fac- a critical mass is achieved. The We have a clear vision on the ob- tor. So, innovation in product de- value proposition is good but not jectives our investments should fol- velopment and the application of good enough to push this forward. low. Santander strategy is very technology to industrialise our The cross-border factoring business clear as we normally aim to be a product offering has been instru- could be relevant to achieve that. top three player in all our core mental for our success. markets. That gives us a deep TXF: In what ways are you cooper- local market knowledge with TXF: How do you view the future of ating with other FIs, and how does many customers and branches, the availability, cost and provision this help your corporate clients? and that allows risk analysis capa- of trade and supply chain finance We are cooperating in all corre- bilities on the ground. in the near to medium-term? spondent banking spaces and dis- We have a clear competitive I foresee a promising future for tribution activities and, at the advantage versus our local com- these products, based on the evo- same time, we are involved in petitors due to our wide product lution of international trade and some alliances of business referral. offering. Thanks to this, our size and the needs of companies to find our entrepreneurial approach in ever more efficient ways of financ- TXF: Santander has a comprehen- trade finance, we can provide a ing and mitigating risks. sive footprint across Latin Amer- better service than our competi- ica, and it has also made big tors. TXF: What football team do you investments in markets such as the We are currently extending our support? UK. What leverage does this give reach with certain operations in I support Real Madrid, the FIFA the bank, and where do you see the USA, UK and Poland. These are Club of the 20th century (and on real growth in terms of transaction growing rapidly and will be key to the way to winning the award banking? further increases in the value of again). ■

We are lucky in that our platforms have been built over the course of many years with real business 15 needs and not as ‘proof of concept’ in a laboratory. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Global head interview – UniCredit

Jonathan Bells talks with Alfredo Bresciani, international trade finance sales, at UniCredit.

Alfredo Bresciani, international places they have stood for cession. Adapting to an ever-more trade finance sales, at UniCredit. decades. In China, we are seeing globalised and regulated market impressive growth in the adoption environment is a challenge for Uni- TXF: What are your views on where of RMB (renminbi) by international Credit and its corporate clients – the trade finance market is at the exporters, and we expect this will and it is one that we are excited present time, and what do you be a game changer in the mar- to meet. think are the biggest challenges ket. that the industry faces? Meanwhile, regulators world- TXF: How is the bank responding The trade finance market is at an wide have introduced a raft of to and dealing with the ever-in- exciting crossroads, and opportu- regulations for both banks and creasing demands of regulators – nities abound. For instance, the corporates since the financial crisis both nationally and internation- barriers to trade are falling in in 2008, and the ensuing global re- ally? Is UniCredit completely pro-

The trade finance market is at an exciting crossroads, and opportunities abound. For instance, the barriers to trade are falling in places they have stood for decades. In China, we are seeing impressive growth in the adoption of RMB (renminbi) by international exporters, and we expect this will be a game 16 changer in the market.

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visioned for Basel III? though their bank – often a mid- With the SEPA (Single European tier, local bank – may rely on more Payment Area) payments format costly and less efficient processes mandated for over a month now, compared to the combined FX corporates have moved past the and payments offerings provided implementation phase and are by global banks. Yet these busi- looking ahead to life after SEPA. In nesses are reluctant to switch to our view, they need not consider global banking providers, be- compliance with the SEPA credit cause of the loss of relationship transfer (SCT) and direct debit and service such a move might (SDD) schemes to be the end of entail. efficiency-creation in treasury In our view, greater collabora- management. tion between local and major In fact, the SCT and SDD banks can result in a better serv- schemes – as well as the transition ice for mid-caps, allowing compa- to the SEPA-designated XML pay- nies to combine territorial ment format – lay the foundations proximity with cost-operative effi- for greater efficiency gains. For ex- ciencies and global competen- ample, UniCredit provides corpo- Alfredo Bresciani, head of cies offered by leading players. international trade & finance sales, rates with the expertise and at UniCredit What’s more, mid-tier banks can know-how to create payments outsource the technology and ex- (and perhaps collections) facto- and compliance. That said, the ecution costs while earning rev- ries. These are central, payment- burden is likely to fall disproportion- enue through an income split on executing units that can work on ately on smaller banks, who may the FX rate with the larger banks. behalf of multiple subsidiaries – respond by seeking partnerships in Such a system already exists in and, in doing so, increase visibility order to develop efficiencies. And UniCredit’s PayFX. Through the re- and control of liquidity and cash in this field, the experience has quired nostro accounts, we can management for corporate treas- proven that banks are not allowed execute foreign currency pay- urers, while reducing transaction to make mistakes. ments in 25 euro/currency pairs. cost and risk. The mid-tier bank – which deals With regard to Basel III provi- TXF: What position is the bank tak- only in euros – avoids losing busi- sion, UniCredit is one of the most ing in regard to servicing new ness and gains a revenue stream stable banks in Europe. In the first clients as well as SMEs? How do from the FX rate. half of 2014, our fully-loaded CET1 you provision in new corporate ratio increased to 10.4% and our risk factors? TXF: What do you see your clients fully-loaded Basel III leverage ratio As global trade flows shift – with asking for now that is different stood at 4.7%. Both are among emerging markets taking an ever from the recent past? Do you see the best in Europe. greater share – many smaller com- a different attitude from corpo- panies and mid-caps are strug- rates? TXF: Has the, or will the, cost of gling to find efficient, Certainly, we see a shift in the na- providing trade finance increase cost-effective banking services for ture of our customer’s needs. Be- due to the greater pressure and their new payments and FX re- cause the desire to expand to requirements from regulators and quirements. Payments to emerg- new locations needs to be bal- those related to compliance? ing markets are increasingly in anced with thorough manage- As stated, a raft of regulations has local currencies, from the Chinese ment of counterparty credit risk, been introduced, and these will in- yuan to the Thai baht. CFOs or treasurers are no longer evitably generate a greater re- Corporates will look to their looking for a single, global transac- 17 quirement in terms of processes bank to make such payments, al- tion bank for their entire business. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

Instead, they seek trusted partners TXF: With corporate contracts and do you view the bank’s trade with whom they can build long- supply chains constantly chang- technology offering in compari- term relationships to better sup- ing/evolving, how are you as a son to other institutions? port their requirements in certain bank able to keep on top of what New technology is at the forefront markets. is required to service their needs? of efficiency-generation in trade fi- Building strong partnerships Remaining abreast of develop- nance. UniCredit is fully aware of it, with our clients is crucial for us, as ments in supply chain finance and aims to be a leader for inno- our key priority at UniCredit is to (SCF) is vital. In the past, SCF was vation by supporting its customers focus on our clients’ needs, build- almost exclusively buyer-driven, in- in adapting to changes. A great ing up intimate relationships and volving revolving receivables pur- opportunity for efficiency en- focusing our internal organisation chase programmes intended to hancement, for example, is the in a way to meet our client’s lengthen days payable outstand- development of Bank Payment needs and delivers exactly what is ing. At the time, the emphasis from Obligations (BPO). This solution important for our clients. many businesses was on the opti- would not have been possible We are also working together misation of inventories and sup- only a decade ago, and we are with our sales and product forces plies – as such, the safeguarding of very excited about the with the aim of always adopting liquidity served its purpose. potential it has as a new trade an innovative, consultative ap- Yet, modern supply chain man- settlement tool. BPOs (like the proach and a CFO perspective agers have a different focus. The adoption of RMB) can also turn (understanding what is of the ut- variance in corporate working out to be game changer in the most importance for a CFO and capital requirements has pushed market. fitting in the feet of our clients). SCF to take a more holistic view – Elsewhere, virtual accounts We strive to share information one aligned to the interests of structures are allowing corporates and knowledge with our sales both buyers and suppliers. For the to build on the efficiencies offered forces, to gain an in depth under- banks offering SCF, such a com- by SEPA. Taken to its logical con- standing of each industry sector, prehensive view is a tough ask – clusion, such a system could allow physical supply chain, the dynam- but it’s a requirement that must be corporates to maintain only one ics affecting specific sectors/ met if they are to remain relevant ‘physical’ account, while creating, markets and the key important to trade. closing and managing their virtual factors in the relationships be- accounts through an online por- tween buyers and suppliers. Our TXF: Technology within trade has tal. This is an example of how new aim is that our sales are recog- grown massively over the last few technology can respond to the nised by our clients as trusted ad- years. What sort of investment has new market environment, increas- visers strongly differentiating from UniCredit made in this area and ing transparency, efficiency and the competition. what do you still need to do? How flexibility for corporates.

Remaining abreast of developments in supply chain finance (SCF) is vital. In the past, SCF was almost exclusively buyer-driven, involving revolving receivables purchase programmes intended to

18 lengthen days payable outstanding.

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TXF: It has been over 18 months seen. But we believe that treasur- That’s its role and where we can since the official launch of the ies are attracted by the improved deliver added value solutions to Bank Payment Obligation (BPO) visibility, liquidity, risk mitigation, our clients. from SWIFT. What is your view of payment timing, and commercial the initiative, what if anything is terms on offer for both sides. TXF: Where do you see the bank holding it back and how impor- These are the benefits that will see making a push in trade finance – tant do you think it will be? BPOs become a successful and product and/or region? Do you While take up of BPOs has been commonplace trade settlement see the bank as having certain slow, we expect it to pick up. In our tool. niche strengths? view, the key obstacle is one of ed- Our niche strength is across the ucation. Treasury and sales de- TXF: Is UniCredit teaming with transaction banking space. We partments, which have fully other FIs, and if so why and how see GTB as the core of corporate understood the potential of BPO, does this make a difference for banking and UniCredit’s offerings should coordinate to establish a your clients? are based on that key principle. common knowledge of the tool. We place considerable value on The sales force will thus play a our large network of correspon- TXF: What do you think the next key role in expanding this under- dent banks. Indeed, leveraging big thing in trade will be? standing to the customers, and will these relationships enables us to fi- Frequent changes in policy meas- convince them of the compelling nance a greater number of deals ures, each more relaxed than the efficiencies of the offer. For these than would otherwise be possible. last, are fast bringing about the lib- purposes, UniCredit has rolled out BPOs and other innovations – such eralisation of the RMB. While only a workshop programme aimed at as PayFX – are new ways in which 2% of external Chinese trade was furnishing treasury departments we can leverage these relation- settled in RMB in 2010, this figure and sales forces with valuable in- ships with greater efficiency. leapt to 18% by last year. The in- formation – fostering conversation creasing adoption of new curren- and providing expertise. And a set TXF: UniCredit has a big and cies in global trade is a trend we of BPO rules (URBPO) – developed strong footprint in Russia, Ukraine are watching very closely indeed. in collaboration by SWIFT and the and throughout Eastern Europe, Banking Commission of the Inter- how has the bank and client busi- TXF: What, if any, is your favourite national Chamber of Commerce ness been impacted by the cur- football team? (ICC) – has done much to in- rent volatile geopolitical situation? UniCredit sponsors the Cham- crease understanding in the wider UniCredit hopes for a peaceful pion’s League so it’s our role to market. resolution, of course. That said, support all the teams taking part – Ultimately, the extent to which trade finance as a technique can but with Juventus FC always in BPOs are adopted remains to be cope with geo-political volatility. mind. ■

Frequent changes in policy measures, each more relaxed than the last, are fast bringing about the liberalisation of the RMB. While only 2% of external Chinese trade was settled in RMB in 2010, this figure leapt to 18% by last year. 19

www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Looking at the post-SEPA migration landscape

Jonathan Bell talks with Martin Runow, head of cash management for corporates, Americas, Deutsche Bank, about the post-SEPA migration landscape.

TXF: How has the Single Euro Pay- fast, easy and cheap as previously Monaco and San Marino, as of 1 ment Area (SEPA) come about, localised payments. SEPA has August, 2014. and what is its importance to con- made this come to pass by stan- sumers and corporates in Euro- dardising the regulations and for- TXF: What are the benefits and/or pean markets? mats for all electronic payments disadvantages of SEPA? Fundamentally, SEPA is about the within the eurozone – effective for The immediate and most readily euro and its functionality as one any cash flows throughout the 34 apparent effects for corporates homogenous currency. In order for affiliated countries including all EU are advances in harmonisation, the eurozone to truly function in its member states (both within and standardisation and automation. intended way – as a single cur- without the eurozone), the Euro- Standardisation comprises direc- rency trading area – cross-border pean Free Trade Association na- tives regulating payments, and the payments and collections within tions (Norway, Iceland, use of XML ISO 20022 format the region should be at least as Liechtenstein and Switzerland), across the board.

For both consumers and corporates, SEPA should result in lower prices for payment services by making the banking market more competitive; in part because the standardisation of communication channels and formats will bring the quality of other 20 aspects of banking service to the fore.

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Previously, regulatory environ- staffing costs and chances of ments – even local interpretations human error, improved visibility of regional regulations – differed and faster processing times. between national borders, and This should also result in in- their established natures offered creased liquidity, due to more effi- little scope for innovation. SEPA’s cient infrastructures, clearing and introductory phase engendered treasury processes – also possible the SEPA credit transfer (SCT) and through upgrading technology SEPA direct debit (SDD) which systems and software or reducing were designed to provide a stan- corporate-to-bank tools, commu- dard payment service product nication links and systems. Due in based on common core features part to concerns around risk miti- and best-practices across Europe. gation – which have become all For both consumers and cor- the more prominent in recent porates, SEPA should result in lower Martin Runow, head of cash years – some corporates are seek- management for corporates, prices for payment services by Americas, Deutsche Bank ing higher levels of bank agnosti- making the banking market more cism, as evidenced by the competitive; in part because the popularity of SWIFT. SEPA’s compul- standardisation of communication treasury functions, bank relation- sory XML format supports this ob- channels and formats will bring the ships and group connectivity. jective, as well as the integration quality of other aspects of banking Treasurers now have the opportu- of non-proprietary models with the service to the fore. Individuals will nity to review their compliance-re- rest of the company, since the enjoy the increased speed and se- lated projects and identify newly standardisation of formats gives curity of payments – but it is corpo- possible areas for internal improve- corporates the freedom to move rates that will really notice the ments – either in operational effi- from one bank to another more streamlining effect of SEPA. ciency, risk control, value-creation easily and thereby reduce their or cost reduction. dependency on any particular TXF: What should corporates do Firstly, the nature of SEPA makes provider. now post-SEPA migration? Overall, rationalisation and centralisation do you see post-migration as a possible: for the first time, corpo- TXF: Are we at a situation now time of challenges or opportuni- rates have the potential to reduce where banks will need to develop ties? their web of bank accounts down new services to meet the needs of Despite the initial costs and com- to fewer, or ultimately to one single SEPA? plexities of implementation, SEPA account that can handle all euro Several existent tools will serve the will be shown to be a positive ad- payments. This in turn creates the development of in-house banks vancement in a broader environ- potential to centralise treasury well, such as virtual accounts or ment of increasing regulatory functions from several subsidiary cash pooling. But banks such as pressures, continuing risk concerns departments to one more efficient Deutsche Bank that are commit- and heightened liquidity de- and more highly automated treas- ted to helping clients – and in- mands. The direct benefits dis- ury centre. deed the wider market – extract cussed above should be seen as For example, utilising payments the optimal advantages from the just the first step in the SEPA journey. and collections factories – allow- new landscape will continue to re- In fact, SEPA regulations should ing payment- and/or collection- search and innovate. be viewed by corporates as the on-behalf-of structures to be The SEPA model for combining preparatory foundation for further instituted – is one way to access local best-practices and applying enhancements made possible by the advantages of centralisation. them to a larger area can be imi- its removal of barriers – bringing Such enhancements offer re- tated in other ways. For example, 21 about the opportunity to optimise duced risk mitigation, lower while they have not been offered www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

in the first round of SEPA products, exchange into cross-border trans- end that we are always working additional optional services (AOS) actions. Whether within a corpo- towards a more holistic view of – such as France’s CAI (Customer rate or in other SEPA-like initiatives, treasury needs, from local devel- Account Information) and Italy’s such uses will lead to harmonised opments (tracked by our new SEDA (SEPA-compliant electronic and enriched data, better trans- market infrastructure unit) to cut- database alignment) – may be parency and improved ease of ting-edge solutions, as well as the adapted to be plugged-in on a compliance. thinking behind our soon-to-be- market-wide basis. launched SEPA whitepaper look- TXF: What is Deutsche Bank doing ing at the deeper and wider TXF: Looking forward, what are the to help its clients deal with SEPA is- treasury opportunities following next expected milestones of SEPA, sues? migration. and will it be beneficial overall for Deutsche Bank has provided banks and corporates alike? clients with support throughout TXF: The IBOS Association (Interna- As a catalyst for change, and now the migration process; guiding tional Banking – One Solution) that the migration date has them through seamless implemen- commented on 1 August 2014 that passed, SEPA will see corporates tation, providing them with infor- “the whole SEPA project has been continuing to capitalise on the in- mation on and access to further a failure”. How do you view that novations and consolidations that opportunities through the SEPA statement? it has introduced. Corporates gateway, and continuing to help The initial logistical complexities within the SEPA zone, those outside those who wish to extend the ad- that corporates faced during SEPA SEPA that nonetheless must com- vantages on a broader and migration cannot be ignored – but ply due to cash flows, and even deeper scale. The suitability and the changes yet to come will those not obliged to migrate, can viability of any of the discussed show how worthwhile this process all leverage this blueprint for simpli- means of leveraging the new pay- has been. Undeniably, it has fication and harmonisation across ments landscape varies depend- caused upheaval – but the results their organisations. ing on each corporate’s are smoother, more efficient and Multinational corporates can particular starting point. Internal unified processes that will pave leverage the global acceptance structural improvements need to the way for other enhancements of the XML format to standardise be designed on an individualised towards optimal automation, communication and treasury level, and it is here that Deutsche connectivity, and harmonisation. processes across their corporate Bank’s expertise and tailored solu- Corporates that identify their body as a whole. It is also possible tions are indispensable. own particular opportunities for that we will see other geographi- Indeed, comprehensive and such progress – and implement cal zones attempting to standard- up-to-date knowledge is key – swiftly and seamlessly with the ise in this way going forwards, as corporates must ensure their support of a specialist provider – the true results of SEPA become banks can provide them with true will find themselves at the crest evident – for example, using XML clarity in a constantly changing of a new wave of payment inno- for data flows to integrate foreign regulatory environment. It is to this vation. ■

The initial logistical complexities that corporates faced during SEPA migration cannot be ignored – but the changes yet to come will show how 22 worthwhile this process has been.

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CGI delivers enhanced products and benefits for banks

TXF: What sort of reception have you had hugely positive dynamic that both our Jonathan Bell at TXF from clients over the past year with the use clients and CGI deeply value.” talks to Kitt Carswell of CGI Trade360? What feedback have In addition to this functional aspect, and Frank Tezzi at you had and how important is this dia- Tezzi says from a market perspective over CGI about the logue? the past year they are noticing some dis- enhanced Frank Tezzi, vice president, trade and sup- tinct changes. He notes: “We have also development of the ply chain solutions at CGI, says: “One of seen more banks look to leverage the as- CGI Trade360® the things that CGI’s Trade and Supply sets they have. Our client banks are look- Chain group is known for is our deep and ing to see how they can consolidate their platform for trade collaborative relationship with our clients. structured trade finance, how they can finance banks, and Our client banks tell us that this is our bring their commodity trade finance on to how the software brand. This is not an accident. We have fos- the platform, how they can bring their and technology tered very close relationships with our trade receivables into different groups and company works to client banks individually and also as a overall consolidation across a single solu- ensure its clients community, where we meet in-person tion – whether that be for a single market achieve maximum twice yearly in working committees to dis- jurisdiction or on a regional basis.” efficiency and cuss trends, agree on service and product Kitt Carswell, senior offering manager operational benefits. direction and to improve every aspect of and executive consultant, trade and sup- our day-to-day interactions. This creates a ply chain solutions at CGI, adds: “Some of

“One of the things that CGI’s Trade and Supply Chain group is known for is our deep and collaborative relationship with our clients. Our client banks tell us that this is our brand. This is not an accident.” 23 www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

TXF: You have always valued further prod- uct development through its usage – can you explain the concept of software as a service (SaaS) and the CGI offering? “Simply put, the Trade360 SaaS delivery model frees the client bank from manag- ing its own trade technology to focus on its business, while CGI takes responsibility for the application, infrastructure, operation and support of the platform on the bank’s behalf. The fee structure is based on trans- action volumes, so costs are predictable and aligned with business activity. The SaaS model allows unparalleled speed to mar- ket with three functional releases a year delivered directly to production,” explains Tezzi. Kitt Carswell, senior offering manager and executive consultant, trade and supply chain TXF: Is this something that is easily adapt- solutions at CGI able for clients, without having to undergo the recent results of this collaborative re- more of the learning curve? lationship with our clients are web services Tezzi responds: “Providing these releases for mobile platforms and corporate bank- keeps our clients ahead of the curve rela- ing portals, integrated payables, and col- tive to the market demands and competi- lateral management. We are also tors, but because client banks can choose beginning the use of automated testing in which new capabilities to use immediately collaboration with clients.” and which they will use at a later time, they Tezzi adds: “What does speak volumes only need to climb the learning curve is when our clients renew contracts with us when they are ready.” and they not only do that without fail, but seek to bind in those contract extensions TXF: Have you rolled out new functionali- for the long-term. Our biggest client has ties (i.e., integrated payables), add-ons or just renewed with us till 2022 – and this is products to the core offering, and how the third time they have extended with us, have those been received? BMO has renewed till 2021 and BTMU till “CGI delivers at least three functional re- 2020. This shows our delivery excellence leases a year into production. It is one of and operational excellence, and the the great benefits of the SaaS model that power driving the product.” banks no longer need to be concerned with justifying an upgrade project compet- TXF: What has CGI done to enhance and ing with the bank’s other priorities. CGI add to the good performance based on does everything but the final user accept- that feedback? ance testing (UAT), and then the new re- Says Tezzi: “In addition to the ideas that lease is deployed into production shortly CGI brings to the table, CGI takes the col- after and available immediately across laborative lead with clients to define re- the client bank’s entire trade footprint,” quirements and design enhancements states Tezzi. 24 whether from the community or individual In addition, Carswell adds: “People client banks.” tend to focus on the parts of the system

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they are using the most. Testing for every- voice discount terms or as the result of one happens at the same time. Absorbing dynamic discounting or processing the new functionalities within an organisa- under an approved payables finance tion though tends to be less critical. An in- programme. The latter includes auto- stitution may choose to absorb a certain matic eligibility assessment, supplier fi- part of a new release as it may help them nance instructions, the Supplier Portal bring in additional revenues, while other for the bank to offer invoice purchase parts of the release can be left till they and automatic invoice financing. need to use that detail. Due payments for a day are auto- “As a result of this and CGI’s close matically aggregated across the port- collaboration with its clients, there is a con- folio by payment method and then by tinual evolution of new capabilities that supplier (up to 10,000), making the are aligned with the real needs of our process both efficient for the bank and clients’ customers and the market in cost effective for the customer. general. Recent examples, as already ● Collateral management – Collateral mentioned, are: for commodity finance and structured ● Web services – Our new web service trade finance has long been man- server exposes the power of our aged on spreadsheets, but today’s CGI Trade360 Portal’s data and busi- regulatory environment, emphasis on ness services to the bank’s mobile or risk management and desire to grow proprietary corporate portal. This the business demand a higher degree allows banks to deliver rich and of deal and portfolio visibility and con- proven functionality across its cus- trol. Moving from spreadsheets to a tomer channels. collateral application takes collateral ● Integrated payables – Building on out of a fragmented world of spread- Trade360’s numerous existing payables sheets into one with global and real- products, this solution takes payables time visibility across deals, portfolios to a new level of simplicity for cus- and geographies. Deeper control and tomers and portfolio based straight- management become possible in- through-processing for banks. cluding automatic market pricing, au- Customers provide payables data in tomatic reconciliation to collateral one common format to pay invoices managers (e.g., warehouse), and au- on its due date, pay a buyer-dis- tomatic ratio and limits calculations, counted amount to capture the in- plus much more.”

“As a result of this and CGI’s close collaboration with its clients, there is a continual evolution of new capabilities that are aligned with the real needs of our clients’ customers and the market in general.” 25

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effective way of delivering them. CGI has taken the integrated platform approach to resolving both of these constraints to business growth.” Adds Carswell: “Rather than develop- ing separate solutions for open account, CGI has been adding open account solu- tions to its integrated Trade360 global transaction platform since 2007. Now, over 20 of the nearly 50 products supported on the platform are open account solutions, which we categorised as buyer-centric payables solutions and seller-centric re- ceivables solutions. As such, the Trade360 SaaS integrated platform approach pro- vides banks with a strategic growth path at no additional cost, since the bank is only charged for what it is using. Frank Tezzi, vice president, trade and supply “There are additional phases for inte- chain solutions at CGI grated payables and collateral manage- ment to add functionality to the portal Carswell adds: “In addition to providing and link all the relevant products into the robust functionality and real-time visibility, end-to-end commodity finance and struc- having collateral management on the tured finance businesses that will be deliv- same integrated platform as the LC and fi- ered in upcoming releases. nance products that are already used to “Our client banks are even able to out- support the commodity finance and struc- source this or any other Trade360 capabil- tured trade finance businesses, will lead to ity to smaller banks that are not able to the complete end-to-end life cycle for deal with open account processing. The these businesses. Our collateral manage- native ability of Trade360 to insource ‘out ment functionality will go live with clients in of the box’ makes this an attractive source December this year.” of revenue for our clients. BMO for exam- ple outsources to certain small US banks. TXF: What changes are you seeing in the And because the overall platform and sys- overall open account frame and require- tem is really flexible they can tailor the ments of corporates in their dealings with services they offer themselves.” banks, and what is CGI doing to meet the Tezzi remarks: “If you look at the market demands of constant evolution in this place, there are a number of small banks space? out there that are trapped – they don’t Tezzi notes: “Open account continues to have open account capability and are be the avenue for growth for trade banks, running outdated applications at a time yet so many banks have no open account when their corporates are asking for more. capability or a collection of standalone So the question for those small banks is do applications accumulated tactically to re- they buy in new systems or do they out- solve individual customer demand. Either source. This gives our client banks an ad- case does not leave the bank in a good vantage as they can market to these 26 position to give customers a seamless ex- institutions the Trade360 integrated capa- perience across trade products or a cost bility they already have.”

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TXF: Banks are increasingly conscious of with a frame workshop to flush out any the cost of overheads, how are you as a gaps and to assess the work efforts for con- banking technology provider collaborat- figuration and integration, leading to a ing with the banks to ensure that the costs project plan and prioritised customisations, of their trade operations are kept as low as if any. possible? The project is normally organised into Says Tezzi: “Trade operations are costly, two phases: which is why from its inception the design ● Phase I (2-4 months) includes set-up, of the CGI Trade360 global transaction training, and configuration of bank’s platform was driven by the concept of environments; creating the most efficient operations pos- ● Phase II (7-8 months) includes integra- sible. Truly global processing, flexible oper- tion, development, and testing (poten- ating models, workflow and imaging, tially in parallel with phase I). streamlined transaction processing and Equally important is close manage- straight-through-processing were integral ment attention through executive steering to its business architecture. These guiding committee and ongoing management principles continue to lead to greater effi- meetings.” ciencies and reduced operating costs. “In addition, the SaaS delivery model TXF: How do you see the further evolution provides cost reductions through shared of the CGI Trade360 platform overall? infrastructure and reduces investment for Carswell concludes: “Trade has become new capabilities.” a quickly evolving business that will require continuous evolution of the plat- TXF: National Bank of Canada has very re- form. Some areas that we see in the short- cently implemented CGI Trade360, what term is rapid expansion of mobile, criteria led them to adopt the platform continued progress to deploy corporate and can you outline how the trials and im- portals, higher demand for SWIFT for corpo- plementation process takes place with a rate as a customer channel, further BPO new customer? enhancement, platform support for sup- “National Bank of Canada needed to pro- plier on-boarding, expanded buyer/sup- vide a modern front-end to its customers, plier collaboration and multi-bank portals improve the efficiency of its back-office to name a few. and extend its open account business,” “On the broader horizon is the devel- states Tezzi. opment of efficient sourcing of funds for Carswell states: “Interestingly, National approved payables finance and other Bank of Canada has a pretty strong open open account financing solutions and the account business. By bringing additional convergence of GTB (global transaction capabilities on board with Trade360 it has banking) platforms to provide seamless allowed the bank to not only upgrade ca- customer experience and efficient tech- pabilities considerably, but will also permit nology and operations. Trade finance these businesses to scale in a greater way.” growth is moving at such a pace that it is He adds: “CGI has an unblemished likely to outstrip available sources of fund- record of successful implementations, ing available through traditional bank which we attribute to our implementation funding methods unless new avenues are methodology that emphasises joint ac- found. As those new funding mechanisms countability and a collaborative ap- develop within the industry, will we seek to proach to the project work. plug into them in keeping with our philoso- 27 “An implementation normally begins phy of interoperability.” ■ www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Who cares about cash?

Prof Michael Henke, When supply chain managers and CPOs the question, ‘Are our suppliers also finan- managing director, do their jobs well, they ensure they have cially capable of producing efficiently Fraunhofer Institute the right product at the right quantity at what we demand?’ for Material Flow and the right place and the right time. When Summarising five years of extensive re- Logistics (IML) and treasurers and CFOs do their jobs well, they search of both empirical studies and analyt- ensure they balance their liquidity needs ical models, we found several successful Dr David Wuttke, and have enough cash to cover com- instances of the use of FSCM. But we also postdoctoral pany needs. But who is responsible for found instances with improvement potential. researcher, cash flows along the supply chain, such as And finally, we found that it is time to clarify European Business those between a buyer and a supplier? some myths. Let us highlight five key insights School provide an When a finance division only cares on the finance and operations interface: insight into some of about extending payment terms and man- the research they ufacturing only about products, firms often 1. FSCM solutions must be tailored to have undertaken in overlook threats and opportunities in their manufacturing and financing needs. the way that cash is supply chain. With financial supply chain For banks and service providers, SCF is usu- managed management and supply chain finance, ally product, sometimes a commodity. throughout the firms can improve their competitiveness. But Banks thus seek to convince their potential supply chain. success is not to be taken for granted. clients of the large benefits hidden in their Financial supply chain management supply chains, waiting to be unleashed by (FSCM) is the optimised planning, manag- the power of supply chain finance. ing, and controlling of supply chain cash However, there is no one-size-fits-all so- flows to facilitate efficient supply chain ma- lution; each firm requires individual adjust- terial flows. To give a concrete example: a ments. It is true; the concept of SCF where procurement manager engaged in FSCM a buyer confirms their supplier’s invoice so does not only care about a smooth prod- that the supplier can obtain the due uct flow and high service levels, but they amount from a bank at low interest rate is also talk with the supplier about finance the same for each application. But each and ensure that the supplier neither runs firm has its unique methods and proce- out of cash nor requires expensive factor- dures, and its individual executives. And ing which, ultimately, would lead to higher the specific suppliers within an industry also costs for the entire supply chain. have many particularities. While traditional supply chain manage- The most successful companies that we ment poses the question ‘Do our suppliers studied often spend a significant manage- have the physical capability to produce ment effort towards adjusting existing solu- 28 the goods in a sufficient quality and quan- tions to their context. Firms had to get all tity?’, FSCM goes a step further and adds internal stakeholders on board: the

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finance function taking a corporate nication – formal and particularly informal finance perspective, as well as procure - – managers can learn from each other. ment managers being familiar with the Only when a company truly overcomes its supplier base. silo mentality can it fully actualise the po- When firms reported internal resistance, tentials of FSCM. And these potentials are it was most often because they did not often multifaceted. find a solution that is tailored to the pro- curement managers’ needs. For instance, 3. More than arbitrage one manager once complained: “We are We often hear that SCF is great because it incentivised to negotiate low prices and enables suppliers to benefit from their cus- now they want us to use this financial plat- tomers’ strong credit rating, namely Michael Henke, managing form on top, but this is not what we were through interest arbitrage. But if managers director, Fraunhofer Institute for Material Flow trained for.” A clear message sent from believe that arbitrage is the main benefit both successful and not so successful firms of SCF, they are often mistaken. is that behavioural factors are central in In fact, we found in an analytical study determining the bottom line impact of that there are many firms that benefit FSCM programmes. more from the financial flexibility added Solutions must be so specifically through SCF. Suppliers who engage in SCF tailored that managers who use them in programmes are entitled to discount their their daily routines feel confident about and confirmed invoices, but they are not are convinced of them. Hence aligning in- obliged to. In other words, treasurers may centives is only a first step. Managers must discount their invoices whenever there is not only be motivated to do the right thing, an investment opportunity that they would they must also be knowledgeable about it. have foregone otherwise. Firms with tight credit line limits will thus particularly benefit 2. From information integration to from SCF, even when their credit rating is David Wuttke, postdoctoral researcher, European knowledge integration not much better than their customer’s is. Business School Since the advent of modern supply chain Moreover, soft benefits, such as the in- management, the necessity of integrating formation that invoices have been re- information flows has not only become bet- leased, do not only create more ter articulated, but also most modern com- transparency but also more trust. While panies now rely on integrated enterprise supply chain managers ultimately commu- resource planning (ERP) systems that afford nicate with their suppliers, it is the task of them excellent information availability. corporate finance experts to interpret this FSCM is even more demanding. Using value added, inform, and convince their FSCM, supply chain managers must be colleagues. able to interpret financial information in a meaningful fashion; they must be aware 4. Strengthening the supply chain that it is not always in the interest of a firm In manufacturing it is well known that to maximize product availability. today’s competition moved away from On the other hand, treasurers must un- firm versus firm towards supply chains ver- derstand that working capital is important, sus supply chains. Therefore, firms along but days payables outstanding (DPO) tar- supply chains increasingly align their man- gets can sacrifice other supply chain goals ufacturing strategies, and integrate them – after all, one’s own DPOs are the sup- with supply chain management strategies. plier’s sales outstanding. In these firms, They share a common understanding as to knowledge integration is required. Through whether efficiency or responsiveness will 29 joint work in project teams, active commu- be decisive in their supply chain’s compet- www.tagmydeals.com www.txfnews.com itive environment. their work to their CFO, can they expect ac- Indeed, it is quite common to use the knowledgements. Only when treasury is able strength of central firms to strengthen other to translate the benefits of supply chain fi- parts of the supply chain, for instance nance solutions in the language of their pro- through information sharing or joint research curement managers, will they be happy and and development projects. However, firms confident to convince suppliers in a lan- seem to be very reluctant to share their fi- guage that the suppliers will understand. nancial strength with their business partners. Carefully assessing when it is crucial to sup- Research outlook port suppliers financially can have substan- So, who should care about cash flows in tial long-term impacts. In turn, when several supply chains? Ultimately, this question firms within a supply chain require liquidity must be answered by each firm individu- input, it is always worthwhile to consider third ally because there is no once-and-for-all party logistics providers who are willing to solution. Often a combination of the fi- take on inventory ownership. nance and the supply chain manage- ment function seems plausible because 5. Talk the same language the former can provide the expertise and Managers often complain about their the latter can provide the required busi- counterparts not talking the same lan- ness insights and information. guage. Let us take this metaphor literally. Moving from information integration to When we meet people who speak other knowledge integration between finance languages, they are usually from other and manufacturing, firms can actualise countries, maybe from far away. They have their financial strengths to bolster their sup- different cultural backgrounds and we ply chain. Once managers manage to find often have difficulties understanding what a common language, they can soon ex- they say. Even if we learned their language plore further value added through FSCM, and are almost fluent, we often miss the which goes beyond arbitrage. nuances. While our five points highlight several The same holds true between manufac- challenges for firms, it is also evident that turing and finance. What does working cap- more research is needed to understand ital mean? What is inventory? What is risk? further implications of FSCM. What is the What is uncertainty? What is a default? Only impact of SCF on financial KPIs? What be- when managers in the same firm and in the havioural factors determine the success or same supply chain have shared under- failure of FSCM projects? Such questions standings of these terms, can they pull to- have to be answered by universities and gether in the same direction. Only when research institutes in the future, to enable 30 procurement managers are capable of their corporate partners to fully leverage communicating the bottom line impact of the potential of FSCM and SCF. ■

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MINTed? Why the BRICS bank has to have a broad remit

The rationale behind the newly established By Rebecca BRICS bank is clear: emerging economies, Harding, CEO, Delta feeling their own strength, have addressed Economics what they regard as the hegemony of US dominated structures like the World Bank and the IMF by going it alone. The bank, which will have a starting capital base of $50 billion ($10 billion each from Brazil, Russia, India, China and South Africa), will service infrastructure and economic development cooperation across the five countries. Interestingly, its remit does not explicitly include trade and, more specifically, trade beyond the BRICS countries, but it should. Delta Economics is forecasting substan- tially flatter export growth for Asia and Rebecca Harding, CEO, Delta Economics Latin America, compared to what was achieved during the peak of the post-crisis recovery, at 5.7% and 4.3% in 2014 and economies, and is illustrated in Figure 1. 2015 respectively. This suggests that there is Up to the middle of 2011, trade be- a real need to recapture some of the en- tween developed and between emerging ergy that drove the rapid growth both be- economies was recovering from the finan- fore the crisis and in 2010 and 2011. Other cial crisis rapidly with double-digit growth countries, such as Mexico, Indonesia, Nige- in both groupings. However, although ria and Turkey (the MINTs) have forecast trade between emerging economies has growth rates in trade of above 5% in 2014 continued to grow, the rate at which it has and 2015, suggesting that it would be grown has slackened off considerably. wrong for the bank to focus just on the in- South-South trade is less than 50% of the frastructure needs of a few countries, value of trade between emerging when there is an opportunity for growth economies and although it is likely to beyond those. reach 50% in the final quarter of this year, North-North, South-South trade is the on current trajectories it will only really take trade between developed economies off in the first quarter of 2016. 31 and the trade between emerging Trade between emerging economies is www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

Figure 1: North-North and South-South trade, June 2001-December 2016 very different to trade between devel- oped economies; it tends to be highly concentrated in commodity and interme- diate technology products. For example, 18 of Latin America’s top 30 exports are commodities and a further five are inter- mediate products. Cars, tractors and re- frigerators are exceptions. South Africa, apart from cars, exports predominantly commodities, as does Russia, while ten of Asia’s top 30 export products are com- modities and 16 out of the top 30 are inter- mediate manufactured goods. This paints a picture of interdependency in commod- ity and intermediate manufacture supply chains, but with real dependency on the developed North for imports of luxury

Source: DeltaMetrics 2014 goods like cars. Figure 2 shows how exports from the South to the North have developed since Figure 2: Value of emerging market exports to the developed markets June 2001. and developed market exports to emerging markets (USDbn), Figure 2 shows two things: first, that June 2001-Dec 2016 trade between the two blocs has not been easy in 2014, and second that ex- ports from the North to the South will grow more slowly than the exports from the South to the North up to the end of 2016. The slowdown in Asia, sustained economic difficulties in Latin America, the Ukraine cri- sis and miners’ strikes in South Africa have all slowed trade in 2014, although Figure 2 shows that this is more marked in trade be- tween southern nations and the north this year than between the north and the south, in part due to the fact that high end exports to China remain strong as the Chi- nese government attempts to move the

Source: DeltaMetrics 2014 economy towards a demand-led growth. However, exports from the South to the North are likely to pick up more quickly over the next two years. As evidence of a fragile demand-led recovery in America and the UK grows, and as Europe begins to look to- wards Latin America and MENA for its en- ergy supplies rather than Russia, it is likely that this process will be accentuated with 32 growth within the emerging regions. This is also the case as Russia searches out for al-

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ternative markets outside of the devel- Figure 3: Expected 2014 share of BRICS countries in total BRICS trade oped world, and as other emerging regions fill the gap in trade with the developed world supplying both substitute products, such as oil and wheat but also extending to soya and meat, where there are already strong supply chains emerging. But, however important the crisis in the Ukraine is, the centrality of China to the BRICS cannot be understated. China ac- counts for some 64% of all BRICS trade, as illustrated in Figure 3. This is an opportunity of course for com- modity trade and supply chain finance; for example, Delta Economics sees the growth in trade finance in base metals be- tween China and South Africa growing by over 50% over the next five years and trade finance in mineral fuels between China Source: DeltaMetrics 2014 and Russia growing by nearly 60% over the same time period in spite of the current cri- sis in Ukraine. This reinforces the view that Figure 4: Value of BRICS exports to the rest of the world versus CNY per Russia will shift its trade with the developed USD, Last Price Monthly, June 2001-July 2014 world to other regions where sanctions are more limited. The importance of China helps to ex- plain the importance of its currency in re- lation to trade. While the other BRICS currencies are either relatively weakly cor- related with BRICS trade, or not at all cor- related, the yuan’s correlation with BRICS trade with the rest of the world is -0.94%. In other words, as the yuan weakens, BRICS trade strengthens, as shown in Figure 4. The yuan is not a freely floating cur- rency, and its recent depreciation has helped both Chinese trade and BRICS trade more generally. But Figure 4 really tells us two things. First, it highlights the growing importance of the yuan as a Source: DeltaMetrics 2014 trade currency (and therefore as a trade finance currency). If the correlation re- mains this strong, then it is very likely that it will become as important as the euro is for Europe in pricing BRICS trade. Second, the chart points clearly to the difficult year that 2014 has been and will 33 continue to be for BRICS trade with Europe. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

Figure 5: Value of BRICS trade to selected emerging regions, The fall-off in trade with the rest of the world (USDbn/USDm) June 2001- Dec 2016 at the beginning of 2014 coincided with a big drop in Chinese exports in Q1, and the South African miners’ strike affected base metal exports. Although there has been some recovery, it has been volatile and is continuing to be affected by the spill-over effects from the Ukraine crisis, which is af- fecting Russian oil exports to Europe. The BRICS’s and, more specifically, China’s dominance, both of inward invest- ment and of trade across emerging mar- kets, will be reinforced by the BRICS bank, which will both act to formalise the rela- tionship between the countries, making them a formal bloc in their own right, and will also increase their economic inde-

Source: DeltaMetrics 2014 pendence and influence. Figure 5, for ex- ample, illustrates the importance of sub-Saharan Africa to BRICS trade, and much of this is because of Chinese inward Figure 6: China’s trade with Mexico and Indonesia (USDm), investment to ensure commodity supplies. June 2001-December 2016 vs CNY per USD Last Price Monthly, June 2001-July 2014 This reflects the importance of the region to South Africa. It is also the region to have suffered most from the drop in trade in Q1 2014 and, while Delta Economics sees trade between BRICS countries and the other three trading blocs as recovering, it will take longer for exports to sub-Saharan Africa to recover to the levels they were at in 2013. This stresses the importance both of the infrastructure remit of the BRICS bank, and its role beyond the five countries of the BRICS. If it is supporting growth and infra- structure development from those coun- tries to other emerging economies, then it is a counter-balancing force for emerging

Source: DeltaMetrics 2014 market trade development globally, and not just within the BRICS. However, there must also be an ele- ment of both reinforcing the importance of the yuan and protecting the interests and dominance of the BRICS as an entity and, of course, of China as the dominant power within the BRICS that will underpin 34 the BRICS bank. What is interesting here, is the fact that the two countries with the

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strongest correlation between the value of is to establish the bank as a meaningful the yuan and Chinese trade, are Mexico counter-balance to the IMF, with sufficient and Indonesia: two of the MINTs with cor- funds and a broad enough remit to sup- relations of above -0.93. port both the infrastructure and the reality Eight of the top 10 sectors exported of trade and trade finance. While the bank from China to Mexico and Indonesia are currently is limited in its remit to infrastruc- intermediate manufactured goods, such ture and joint economic development, this as semi-conductors, computers, electrical should not remain the case for the simple components and machinery. These are reason that the BRICS bloc itself is too im- global supply chains that move relatively portant to the rest of the world in terms of quickly, as global corporates seek to min- commodity and intermediate goods sup- imise costs by locating elsewhere. Exports ply for it not to extend its support beyond from China to Mexico of liquid crystal de- those countries. vices are forecast to grow at over 17% in The emerging world, and the BRICS in 2014 alone, suggesting that Mexico’s ca- particular, is fraught with geo-political, eco- pacity to produce end products, such as nomic and structural economic develop- cars, which use these devices is growing. ment challenges that are reflected in the The MINTs, fraught with economic and po- trade statistics for 2014, and this is the chal- litical challenges as they are, do not look lenge of the BRICS bank. It is not enough like the growth engines they were as- to set up a counter-balancing institution if sumed to be when the phrase was first that institution is already likely to have to coined, but should be included within the deal with high levels of sovereign indebt- trade infrastructure development remit of edness, and the fall-out from sanctions the BRICS bank. against Russia. Its capital base will need to For the BRICS bank, then, there is an op- be large for this, as will its remit – in short, it portunity and a challenge. The opportunity will need to be minted! ■

The emerging world, and the BRICS in particular, is fraught with geo-political, economic and structural economic development challenges that are reflected in the trade statistics for 2014, and this is the 35 challenge for the BRICS bank. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

Securitisation of trade receivables: an alternate source of corporate liquidity

Arnold Alpert, Overview Balance sheet management objec- director – deal Securitisation is a powerful technique for tives may also be achieved via securitisa- origination, Finacity, deriving flexible and efficient liquidity from tion, with international financial reporting a corporation’s trade accounts receiv- standards (IFRS) or US generally accepted examines how ables. It can provide committed, revolving accounting principles (GAAP) sale treat- securitisation funding on a non-recourse basis at a low ment providing an opportunity to buy- programmes can ‘all-in’ cost, with the possibility for account- back shares or deleverage. Debt-to-equity, assist corporates in ing sale treatment, term placement, or return on assets, days sales outstanding, raising liquidity. other useful features. Once the provi- and the ‘quick’ ratio can each experi- dence of large multinationals, advances in ence improvement and foster compliance technology and the emergence of third- with loan covenants or lower costs on ex- party specialists, like Finacity, have empow- isting grid-priced credit facilities. ered corporates of many sizes and market sectors to take advantage of the benefits Securitisation structure of securitisation. Securitisation is essentially a legal con- struct. A company sells its trade receivables Reasons to securitise on a legal true sale basis to a bankruptcy- Raising cash efficiently is the most com- remote special purpose vehicle (SPV) es- mon reason to securitise receivables. An tablished especially for the transaction. The ability to convert what is typically the SPV’s security over customer collections largest asset on a company’s balance creates a ‘closed loop’ between invoicing sheet into cost-effective financing repre- and payment. New receivables are pur- sents an important enhancement in the chased each day with retired receivables’ field of working capital management. That cash in a revolving cycle that supports an the resulting instrument can be better- extended funding duration. rated than the issuing company also pres- Analysis of historic patterns in the cre- ents a unique opportunity for credit ation and retirement of customer obliga- arbitrage. A securitisation platform (and tions determines the advance rate against the capital markets access it provides) the receivables collateral. This advance can grow and change over time, present- rate can be maximised with insight into in- 36 ing a flexible financing path and durable dustry dynamics and precision control source of funding diversification. over ledger data. Structures are predi-

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cated on the performance and diversity of the receivables pool, and there is little em- phasis on the credit quality of any individ- ual customer. Securitisations function as an ‘overlay’ on existing systems, preserving a company’s control over processes, customer relation- ships, and servicing. Properly structured and implemented, a securitisation provides re- volving funding, insight into working capital dynamics, and opportunities for efficiency improvements in treasury operations.

Capital markets construct Securitisation fashions a company’s book of commercial accounts receivables into investment-grade and non-investment grade securities. The relative proportion of Arnold Alpert, director – deal origination, these ‘senior’ and ‘junior’ notes is a func- Finacity tion of the desired attachment point and underlying performance of the receiv- adjusted by the company as frequently as ables pool. Published rating agency crite- weekly. Conduit funding commitments ria describe the quantitative bases for can be three-year, though one-year annu- structuring AAA, AA, A, and BBB notes. ally renewing programmes are the norm in Higher attachment points usually result in periods of stress and five-year commit- better pricing, but less overall liquidity. ments are achievable exceptionally. Fixed- Pricing varies according to a com- rate and longer-termed issuance outside pany’s credit quality, note tenor, complex- the bank market is possible and, indeed, ity of the receivables pool, structural may represent an attractive alternative to features, and macroeconomic factors. high-yield bonds. Securitisation limits in- Banks and their asset-backed commercial vestors’ recourse to the receivables collat- paper conduits (CP conduits) are the eral – there are no financial guarantees usual investors in this structured paper, made by the company. though standalone term issuance to tradi- tional fixed-income investors is also possi- A flexible funding platform ble. In a typical situation, the senior note is A company’s investment in securitisation sold to an investor and the company re- creates a durable, flexible, investment- tains the junior note. Customer defaults (up grade funding platform. Once the receiv- to the value of the junior ‘first loss’ note) ables collateral is properly analysed and are borne by the company absent miti- understood, it can be fashioned into a va- gants like trade credit insurance or letters riety of notes to suit the company’s instant of credit, precisely as would be the case funding needs or longer-term goals. AAA without a securitisation. notes can be issued to minimise cost of CP conduits fund senior notes on a funds or A notes can be created to priori- floating rate basis – CP cost of funds gen- tise liquidity – one client of Finacity sells erally tracks Libor and spreads currently both AAA and BBB tranches to balance range from 40 basis points (bp) to 240bp. quantum and quality of funding. Notes 37 Financing levels are variable and can be and their underlying investor commitments www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

can repeatedly be created, retired, or ex- to an existing programme, generating pired under a single platform. The compo- $250 million of additional liquidity. Acquisi- sition of investors and specific terms of their tive companies with an existing securitisa- funding are evolved over time. tion can quickly fold a target’s accounts Multiple (pari passu) notes within an in- receivable into their platform, creating ef- dividual tranche are also possible, each ficient purchase financing. Subsidiaries with different investors, pricing, tenor, term may also be removed from a company’s or variable funding basis. Concomitant is- securitisation, as may be necessitated by suance of one-year variable and three- divestiture or other activity. year term notes in a benevolent pricing In order to ensure maximum flexibility, it environment could represent a strategic is important for a company to take owner- balance between cost and commitment. ship over its securitisation platform. Third- The company can command its platform party specialists like Finacity can support to issue additional series of notes, provided this by providing the necessary structuring there is sufficient collateral and investor experience, infrastructure, transparent re- support. porting, and market guidance. Relying The life of a securitisation platform is not upon a relationship lender to establish and limited in time and programmes may con- maintain a company’s securitisation is a tinue for 10 or more years, growing and common option, but results in the platform changing with a company over cycles of being captive to the bank and obliged to investment, acquisition, and divestiture. Nat- incentives potentially different from those ural sales growth results in more receivables of the company. collateral, providing the platform scope to issue additional notes. The inclusion of ad- Perceived complexity ditional company subsidiaries into an exist- All major ratings agencies have devel- ing securitisation programme can likewise oped sales-based criteria for trade receiv- add to the available receivables pool and ables securitisations that determine facilitate additional funding. advance rate on a given pool by deduct- One Finacity client recently took ad- ing ineligible receivables and then project- 38 vantage of the currency crisis abatement ing loss and dilution rates to the desired to add its Spanish and Italian subsidiaries level of credit enhancement. Smaller ‘re-

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serves’ for bond yield, fees, currency fluc- market knowledge is an advantage. tuations, or other factors may also be as- sessed. Securitisations need not be formally Role of a securitisation specialist rated by an agency, but public and pri- A third-party expert can reduce complex- vate ratings are available at a cost if re- ity, increase funding efficiency, and slash quired by the investor. The maths behind securitisation’s barriers to entry. Finacity, for these methodologies is penetrable, but a example, essentially acts as our clients’ in- learning curve exists. house securitisation department. We per- Qualitative considerations can also form quantitative and qualitative shape the advance rate. ‘Unbilled’ receiv- assessments of the receivables pool, lever- ables that result from goods issued but not aging our extensive experience, treasury yet invoiced, for example, are valid collat- knowledge, and advanced analytics; as- eral in many jurisdictions and can be in- sist clients in understanding market norms cluded within a securitisation if properly to identify the most appropriate funding tracked. Differentiating between ‘contrac- source (facilitating offering circulars and tual’ dilution elements known at the time of road shows on term deals); structure the invoicing (volume rebates, tolling, good securitisation to maximise liquidity in con- customer credits, etc.) and ‘non-contrac- cert with investors’ credit requirements; tual’ dilution (short shipments, non-con- and manage the programme throughout forming goods, pricing errors, etc.) can also its life (including a proprietary IT platform serve to increase the amount of liquidity that automates the production of detailed derived from the receivables pool. Such el- daily securitisation reporting). Our involve- ements can be identified by a sufficiently ment results in a strict and advantageous experienced treasury professional, but re- application of securitisation criteria, max- quire knowledge of receivables securitisa- imising liquidity and providing investors with tion frameworks to properly analyse. transparent and accurate reporting. Investing market norms also influence the funding outcome of a receivables se- Challenges and solutions curitisation. Certain investors may not ac- Specialist infrastructure and a template- cept trade credit insurance as process can facilitate companies’ origina- enhancement on a portfolio; others may tion and maintenance of accounts require an agency’s private rating for regu- receivables securitisation platforms, over- latory capital purposes; some may insist on coming historical challenges in the space: cross-default clauses in securitisation legal ● Industry: receivables securitisation is documentation; a few might have unusu- applicable wherever there exists a ally high CP cost of funds. In this opaque non-interest bearing timing mismatch matter, an advisor with sufficient breadth of between a customer’s obligation and

The life of a securitisation platform is not limited in time and programmes may continue for 10 or more years, growing and changing with a company over cycles of 39 investment, acquisition, and divestiture. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

payment. Areas as diverse as health- ● Credit underwriting: smaller or finan- care, commodities trading, telecom- cially weaker companies may (rightly munications, energy distribution, or wrongly) be perceived by the capi- transportation, freight, media, and tal markets to have lower customer un- manufacturing have successfully ap- derwriting standards or higher fraud plied such structures. Precise control risk. Finacity’s rigorous and transparent and reporting of ledger data is the approach to reporting provides confi- common theme. dence to investors, helping facilitate ● Reporting: securitisation reporting is ul- programme placement. timately the company’s responsibility. ● Performance volatility and customer Organising and maintaining a basic concentrations: extreme seasonality, level of reporting can require signifi- performance volatility, and high cus- cant FTE commitment from a treasury tomer concentrations in the receiv- department and still deliver suboptimal ables pool may make securitisation less funding results. In particularly complex efficient. Finacity has implemented cases, it may be determined that the specialised trade credit insurance and number of subsidiaries and systems hybrid securitisation/factoring struc- make securitisation prohibitive. Finacity tures in certain cases to mitigate these has delivered outstanding results in effects. Our €100 million ($130 million) these instances, shouldering the work- securitisation for Sonae Industria, for ex- load and maximising liquidity through ample, bootstrapped a €5 million fac- daily reporting. toring programme to fund otherwise ● Size: up-front investment in a securitisa- ineligible receivables collateral. Smaller tion platform drives the minimum pro- programmes also remain a possibility. gramme level required for funding to ● Cross-border receivables: it is not un- be efficient. Multiple subsidiaries, juris- common in the increasingly globalised dictions, and currencies increase com- economy for a company to have re- plexity and cost. Finacity has facilitated ceivables originated in multiple juris- securitisations as small as $35 million dictions and currencies. Proper and $25 million should be viable by structuring and reporting can facilitate properly leveraging our infrastructure funding for most of these receivables and templated approach. $100 million within a single platform in constituent is the typical minimum for a Conduit- currencies or a single currency, as re- funded transaction and higher receiv- quired. Where law or currency controls ables levels can facilitate additional may present an issue (China, India, structuring options. Finacity’s largest se- Brazil, etc.), a separate platform and curitisation has been $1.7 billion and funding source may be a solution. Fi- larger programmes exist in the market. nacity has successfully facilitated such ● Off-balance sheet treatment: sale treat- local placements in Mexico and ment for receivables securitisation is Colombia and is pursuing transactions possible under both US GAAP and IFRS. in India, Turkey, Brazil, China, and else- A more complex approach is required where. under IFRS and typically involves trade Securitisation remains a uniquely effec- credit insurance, which increases costs tive option for funding trade receivables, and reduces flexibility. Finacity has suc- whose efficiency and applicability contin- cessfully applied a volatility-based ap- ues to evolve through improvements in 40 proach to achieve off-balance sheet structuring, technology, and capital treatment without need for insurance. markets. ■

www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Entering a new era in commerce and finance

Electronic commerce, initially a consumer ranging from a handful of dominant busi- André Casterman, market phenomenon, is becoming firmly ness-to-business hubs (e.g. Ariba and global head, entrenched in the corporate space. The Basware) which each connect more than corporate and emergence of Business Networks and the one million businesses and handle $500+ supply chain digitisation of financial services represent million worth of transactions through to markets, SWIFT and significant changes for corporates and hundreds of industry- or country-specific member of the their banking partners. Combined, these eInvoicing hubs. innovations are transforming the way mar- The development of Business Networks banking executive ket participants transact with each other demonstrates how collaboration between committee at the across end-to-end supply chains. The op- trading counterparties can simplify and International portunity for transaction banks is as big as streamline trade and financial processes Chamber of the risk of ignoring this transformation. by providing cloud-based purchase-to- Commerce (ICC), pay solutions. The result is more efficient examines how Digitising commerce procurement, accounts payable and ac- rapidly digitisation is Business Networks which enable businesses counts receivable functions as well as influencing the trade to transact with each other digitally have leaner financial processes. space. proliferated. These platforms connect buy- ers and suppliers around the world, en- Digitising shipping information abling manufacturers, wholesalers and Digitisation of trade flows is well illustrated exporters to digitally manage their trade by the transformation of one of the most flows. At present the market is diverse, manual processes in world trade – the bill

Business Networks which enable businesses to transact with each other digitally have proliferated. These platforms connect buyers and suppliers around the world, enabling manufacturers, wholesalers and exporters to 41 digitally manage their trade flows. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

possibility of intermediation earlier in the supply chain by offering risk mitigation and financing services as from the start of phys- ical supply chains, i.e. where the sale con- tract is agreed. A BPO is an irrevocable undertaking given by one bank to another that pay- ment will be made on a specified date after a specified event (such as delivery of goods) has taken place. The specified event is evidenced by a match report generated by SWIFT’s Trade Services Utility (TSU). BPOs can be incorporated into SWIFT’s TSU through a buyer’s bank or a third party bank. The BPO is due when data is accurately matched or when all fi- nancial institutions involved in the transac- André Casterman, global head of corporate tion have accepted any mismatches or and supply chain markets, at SWIFT in Brussels discrepancies. This process results in a fully electronic of lading. This document, issued by a car- alternative to the letter of credit (LC), rier, contains shipment of merchandise de- which enables efficiency gains, working tails and gives the title of that shipment to capital reduction and cost savings. a specified party. Bills of lading are impor- tant documents used in international Risk management benefits of trade to help guarantee that exporters re- digitisation ceive payment and importers receive The cost savings and efficiency gains that merchandise. result from combining electronic com- Service providers such as essDOCS and merce with electronic trade finance are Dubai Trade have been involved in the attractive to buyers and sellers as well as digitisation of bills of lading, working with for banks. Accelerating the lifecycle of the freight forwarders that issue them. Be- trade transactions enhances the mutual cause electronic bills of lading are legally appeal of both buyers and sellers as it mit- and functionally equivalent to paper bills igates risks in international trade for both of lading, they are ideally suited for faster trading partners while also enabling im- and automated handling by bank sys- provements in shipments and payment tems. terms. Corporates also stand to benefit from easier – sometimes on-demand – ac- Digitising trade finance processes cess to financing and reduced opera- Securing electronic commerce requires tional risks associated with the manual banks to extend beyond paper-based processing of paper documents. practices and is now made possible via As more corporates flock to Business the new digital trade instrument, the Bank Networks, banks will be presented with an Payment Obligation (BPO). An alternative attractive opportunity to extend their fi- means of settlement in international trade, nancing services via those networks. As the BPO provides the benefits of a letter of highlighted in SWIFT’s white paper of April 42 credit (LC) in a digital multi-bank environ- 2013, the BPO will offer trade financiers the ment. Importantly for banks, it offers the opportunity to finance supply chains from

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the very early start of supply chains, i.e., can join forces to solve a problem and when the purchase order is raised, not just that as a result, more financial services when the invoice is approved by the buyer. such as risk and financing services can be digitised. Conclusion: collaboration key to The combination of Business Networks unlock more value from digitisation with the growing digitisation of payments Business between corporates is carried out and trade services has set the scene for a in an increasingly digital way. The digitisa- new, digital era of commerce and finance. tion of commerce and finance flows has Payments and trade bankers will signifi- come a very long way and now there is cantly benefit from this new era. ■ transformation in even the most difficult processes (e.g., shipping) to digitise. Digitisation of commerce and finance References is not solely about technology; it is an area • Advanced Treasury and Trade Innova- that also requires collaboration between tions for Corporates, July 2014. all of the parties involved in trade transac- • A new start for Supply Chain Finance, tions: corporates, banks, Business Networks, April 2013. banking networks and the supporting • Accelerating Global Trade Finance, treasury and trade technology vendors. January 2012. The development of the BPO has • Collaborative Supply Chain Finance: a proved that the financial services industry few more steps to go.

The combination of Business Networks with the growing digitisation of payments and trade services has set the scene for a new, 43 digital era of commerce and finance. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

The rise of factoring in today’s trade landscape

Michel Leblanc, The decline in the use of documentary be handled through a less sophisticated deputy vice credits for risk mitigation has been preva- platform then supply chain finance. The president, lent across the entire global economy for aim of factoring is to provide financial sup- international trade, some time. This has led to corporates seek- port to the seller and payment extensions ing new ways to effectively manage trade to debtors, when required, easing cash National Bank of risks. flow. Canada, examines Additionally, with the banking industry’s the expansion of move towards more conservative credit Supply chain finance is buyer-centric factoring as a trade models and more stringent banking regu- The supply chain finance process stems finance tool. lations, the adoption of programmes like from the buyer, which wishes to offer finan- factoring, reverse factoring and holistic cial support to suppliers. The suppliers view supply chain financing is likely to increase supply chain finance as a means to im- further as companies continue to seek proving their financial flexibility, balance ways to optimise liquidity and fund invest- sheet treatment and financial ratios. The ments. advantage of a supply chain finance pro- There are a number of key points to gramme is often greater for SMEs than for consider when assessing these develop- larger companies because it gives them ments: access to less expensive supplier financing than they could obtain on their own. It Factoring is primarily seller-centric does this by leveraging the credit rating of Traditionally, factoring negotiations are ini- the buyer. tiated by the seller, who decides to assign However, buyer schemes do not ad- part of their portfolio to a factor. The factor dress all of a supplier’s needs nor are they checks the quality of the accounts receiv- suitable for all buyers. A financial institution able, and assesses the seller and the buyer. able to offer both supply chain finance If the results are positive and diligence and factoring is best placed to help its cus- checks approved, then the factoring tomers. agreement will be signed and the seller will Although different in their approach, receive financing upon assignment. It is a both factoring (traditional and reverse) quite simple structure. Major issues are ban and supply chain finance share a few ele- on assignment, dilution and commercial ments in common: they operate in the dispute between the parties. open account space, rely on the per- 44 With reverse factoring the initiative is fected assignment of accounts receiv- taken by the buyer, and the process can ables, and are potentially influenced by

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external forces that could adversely im- pact the growth of the industry

What type of company uses factoring and why? Small and medium enterprises, business start-ups, and undercapitalised compa- nies are primary users of factoring solu- tions, in order to: a) Protect against bad debt b) Outsource their collection and sales ledger function c) Optimise working capital Contrary to the normal perception that factoring is used only by SMEs, large cor- porations or multinational companies also use factoring, particularly for the following additional reasons: Michel Leblanc, deputy vice president, d) Improve their return on asset ratio international trade, National Bank of Canada (ROA). In some countries, their ac- counting standard allows them to re- risk management needs of businesses who move the account receivables from are undertaking open account sales and their book if they are sold on a non-re- purchases. course basis. e) As a sales enhancement tool, to re- Factoring and supply chain financing duce outstanding receivables, im- in North America prove DSO, and enjoy higher sales to In Canada, supply chain financing is more the buyers. difficult to predict, as there are no openly available statistics on supply chain finance Factoring and supply chain financing volumes. Nevertheless, many players (par- in Europe ticularly large banks) believe the demand This is a strongly developing market but for supply chain finance solutions will grow, with no dominant players or single ap- as market participants will try to gain a proach. Europe is not one unified country competitive edge by either offering longer and there is also variation in adoption be- payment terms to their buyers or negotiat- tween the continent’s numerous countries. ing longer payment terms with their suppli- In Spain for example there are higher levels ers. of penetration than elsewhere, led by the In the USA, specialists predict a positive major Spanish brands. Portugal has fol- future. Over the last 18 months, the fastest lowed a similar level of development, with growth has come from programmes that the UK, Germany and France still in a more have international suppliers. Also, an inter- developmental phase although gaining esting statistic shows that more than 98% traction. of transactions by dollar value into and out Throughout Europe, we are witnessing of the US are conducted on open ac- a growing utilisation of supply chain solu- count terms. tions and factoring and invoice discount- Therefore the growth is likely to con- ing. These are entirely complementary tinue as companies will continue to look to 45 approaches to meeting the liquidity and diversify their capital structure and main- www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

tain their sales growth. However, this sector to communicate benefits to suppliers, will remain in the hands of certain domi- especially in cross-border pro- nant financial institutions because there grammes; are few multi-banking supply chain fi- ● Developing financial regulation is ex- nance platforms in development. pected by financiers to present negli- gible obstacles for the development of Factoring and supply chain financing the supply chain finance market. in Asia For all the above reasons I believe the In various Asian countries the growth future of factoring and all related activities of factoring has been dramatic. China is such as invoice discounting, reverse factor- an excellent example as financing for ing and supply chain finance is well estab- SMEs remains complicated and the re- lished and is part of the success of quest for longer terms and paperless trans- international trade. actions (no letters of credit) from buyers is However, regulations, rules, discipline increasing. and education are mandatory in order to Factoring is growing fast and the inter- make sure the growth of the volume and national side of it is captured by Factors the business as well as the number of new Chain International (FCI), acting as the players is well organised and fully devel- lead organisation in this part of the world. oped. Hence, we see the role of FCI as a However supply chain finance pro- catalyst for all the participants in the sup- grammes in these markets need to be ply chain finance world. structured differently because of the re- For more than 45 years, FCI has evolved gional complexities – including local legis- into one of the most unique associations in lation, multi-regime compliance and the field of financial services. It is unique in marketing the advantages to suppliers for that it holds a combination of special traits. banks in rolling out cross-border supply FCI acts as a trade association supporting chain finance programmes. the growth of international factoring (IF), Demica Intelligently Working Capital is- providing a legal foundation, offering a sued a report in May 2013 titled: A Re- communication system, providing advice, search Review of Progress in the learning, and guidance through a robust International Supply Chain Finance Mar- education platform, accentuated by an ket. Among the key findings in this report: innovative marketing effort, and led by an ● Major international banks surveyed engaged and focused secretariat. across the world are reporting 30%-40% Since the founding of this great associ- annual growth rates in supply chain fi- ation, FCI has been the undisputed leader nance programmes; in open account trade finance. With the ● Strongest sectors for supply chain fi- advent of globalisation in the 1990s, and nance take-up are retail, manufactur- with the development of a vibrant chain ing, consumer products, automotive, and open door policy, FCI led the charge, agriculture, chemicals and pharma- doubling the size of the association, and ceuticals; taking advantage of the explosion in open ● Eastern Europe, India and China are account trade from East to West. currently considered the top three The FCI network is seen as having the areas of the world with the greatest capacity for supporting supply chain fi- supply chain finance market potential nancing and factoring businesses. FCI has in the future; a role where banks initiating supply chain 46 ● Corporates point out that banks need deals lack the international network to to develop specific support packages cover all suppliers and all countries. ■

www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Ambitious ITFA revamp looks to the future

The International Trade and Forfaiting As- Amongst a raft of new measures to be Hesham Zakai sociation (ITFA), formerly the International introduced by ITFA are: a database of reports on changes Forfaiting Association (IFA), has undergone members; more lobbying and influence taking place within an ambitious revamp, focused on playing over regulators and regulatory decisions; the International a bigger role in a changing market land- deeper relationships with various stake- Forfaiting scape, and building a more viable struc- holders in the sector; a new website Association. ture for the future. (www.itfa.org) with better aesthetics and Details of the changes were discussed greater functionality, including the ability at the association’s annual conference – for members to write and upload articles on its fifteenth anniversary – held in on relevant issues; the creation of an ex- Barcelona on 10-12 September. The event pansive young professionals network; and welcomed 173 participants from 29 coun- more exposure for the association via par- tries, while speakers included African Ex- ticipation at conferences and media inter- port-Import Bank (Afreximbank) vice views. president, Dr Benedict Oramah and The capacity of the association to de- Markus Wohlgeschaffen, head of global liver on these aims was bolstered by the trade finance and services at UniCredit, expansion of its executive board from among others. seven to nine. Luiz Simione, managing di-

“Our aim is to help support young trade finance practitioners’ professional growth, by developing a strong network that fosters education, knowledge exchange, transfer of ideas and skills, and a lot more.” 47 www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

rector – global head of forfaiting and risk distribution at HSBC, is one of the board’s new recruits, and will be responsible for building on existing and new institutional relations. “We want to grow as an association. “Africa is a missed We are a niche player, rather than the opportunity biggest player, but we want to be bigger. We want to be a strong voice for our mar- historically, but a ket that is in contact with other important associations, such as the ICC or BAFT,” says natural market for Paolo Provera, ITFA chairman. forfaiting.” “We also want to build greater credibil- ity and develop our market presence. We are currently recognised as a European association, but we are actually interna- The association will try to leverage the tional,” adds Provera. potential of its younger members through This last aim received a significant its new initiative ‘Young Professionals in boost at the conference when Eric Intong Trade Finance & Forfaiting: Let’s Build the Monchu, manager for trade finance at Future!’ Afreximbank, announced the suprana- Headed by Johanna Wissing, the initia- tional bank’s intention to join the associa- tive will include networking events, training tion. A partnership with Afreximbank could courses and a flagship mentoring pro- be instrumental for ITFA in gaining traction gramme that will see young professionals with banks in African countries. paired up with their more experienced Dr Oramah had branded Africa as the counterparts. next frontier for forfaiting – and this was not “The development of young potential a description Sean Edwards, ITFA’s deputy is key to the continued growth and on- chairman, had any intention of disagree- going success of global trade in today’s ing with. world, and in the ever-evolving and grow- “Africa is a missed opportunity histori- ing trade finance markets,” says Wissing. cally, but a natural market for forfaiting,” re- “Our aim is to help support young trade marked Edwards in welcoming closer ties finance practitioners’ professional growth with Afreximbank. by developing a strong network that fos- Teresa Casal, special projects advisor ters education, knowledge exchange, for ITFA, added that the voluntary associa- transfer of ideas and skills, and a lot more.” tion would also be targeting other emerg- ITFA’s re-brand is perhaps a belated ing markets – including China and Russia – recognition of the role of forfaiters in the based on their growth potential for trade trade world, but it is nonetheless a wel- finance. come one. The new regulatory landscape Meanwhile, Albania’s Banka Kom- and obfuscation on topics of terminology betare Tregtare joined the association in and product standardisation, accentuates another indication of its widening reach. the need for coherent, coordinated ap- “We are a body of skilled, experienced proaches to key industry questions. practitioners. We have more than 150 If it manages to successfully implement years of collective experience and knowl- its ambitions, ITFA will certainly make 48 edge as well as a young generation driv- significant steps in driving the industry ing the association forward,” says Casal. forward. ■

www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014 Trade finance: in conversation with the masters

Paul grew up in rural England on a fam- In this first instalment, A man who attains mastery of an art re- ily farm. The Johnson family specialised in- Alexander R. Malaket, veals it in his every action. flowers, growing them outdoors in the president of OPUS - Samurai maxim summer and forced in glasshouses with Advisory Services heat in the winter. The farm was just outside International, and Those of us in the business of trade finance Boston on the east coast of England and author of ‘Financing are well aware of an upcoming shortage the family did a lot of business with traders, Trade and of skill, expertise and depth in this disci- growers and wholesalers in the Nether- pline, as one (or two) generations of trade lands. Paul’s interest in, and linkage to International Supply financiers retire, without the benefit of a international trade – and trade finance – Chains’ (Gower UK, next generation of specialists ready to fill finds its roots during school holidays, 2014) shares insights the gap. This is a systemic issue, which is when he had the chance to go along with and observations global in scope, and one that results from one of the contract trucking companies from Paul Johnson, a combination of factors best left to sepa- during the overnight trip to the Amsterdam director, senior rate and specific consideration. area. Door to door it was a 7-8 hour trip product manager , Irrespective of the underlying causes, involving a roll-on and roll-off ferry trip Bank of America there is little doubt about the outcome: a from Harwich on East Coast to Hook of Merrill Lynch, based in great deal of experience, expertise and Holland. Los Angeles, USA. personal commitment to the business of fi- Adolescent Paul would arrive to go nancing international commerce will be through customs about 4 or 5 AM the next missing from the global business environ- day, to ensure arrival at the market for the ment in a few short years, unless the matter opening. Typically it was flowers in one di- is addressed very specifically and very rection and daffodil/tulip bulbs in the quickly. It is with a view to supporting – per- other. As this veteran of the industry de- haps even helping to attract – the next scribes it, he had a lot of exposure to cross- generation of trade financiers, that this se- border trade from an early age. It was ries has been envisioned and developed. noted that all the business done by the Johnsons was on open account terms, Meet Paul Johnson even then. Paul Johnson currently holds a product I asked Paul recently to share what he Alexander Malaket, management remit covering trade and considers to be some key lessons he has president of OPUS Advisory Services International supply chain finance for Bank of America learned in his career in trade and trade fi- 49 Merrill Lynch. nance. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

The topic of conversation: top lessons learnt Lesson 1: A career that creates value, has value The visibility and profile of transaction banking, and within that, of trade finance, has varied significantly, depending on the time period, the market and the degree to which trade has been (or has been ac- knowledged to be) central to the creation of economic value. Before the financial crisis, trade finan- ciers preferred to do their work in the back- ground, without much fanfare or public profile, and certainly with less visibility than other, more ‘high-flying’ areas of invest- ment banking and finance. Since the peak of the global financial Paul Johnson, director, senior product crisis and the economic crisis which fol- manager, Bank of America Merrill Lynch, in Los Angeles lowed (and lingers stubbornly today), the critical role of trade finance in enabling trade – ‘real-economy’ commercial activ- Despite high-profile examples to the ity – has been acknowledged at the high- contrary, Paul expresses that view that est levels of business and government. most bankers intend to do the right thing Trade financiers have experienced a re- and serve their clients and their communi- newed sense of pride in their business, a ties well. It has long been demonstrated widely-shared appreciation for the impor- through observation and academically ro- tance and value of the trade they critically bust research and analysis that banks do support through payment, financing and not simply facilitate the movement of risk mitigation solutions. The positive impact money, but that they play a critical role of of trade on international development the creation of economic value. and poverty reduction is particularly illus- It is rewarding to be associated with trative. and active in a business that creates – and “As bankers, and trade financiers in is seen to create – value. particular”, observes Paul, “we aim to help clients achieve commercial and eco- Lesson 2: Expect the unexpected nomic goals, sometimes very significant in Trade, and by extension, the financing of value and impact, and sometimes in ex- international trade, requires senior practi- tremely challenging markets and condi- tioners to be globally oriented, highly tions. What is gratifying, in addition to aware and internationally effective, per- successes we have in these areas, is the re- haps even prepared to be engaged and ality that the work of our clients, and responsive in a business that runs across all hence our work, very often involves the fa- timezones. cilitation or creation of social good: the Trade finance is directly affected by, creation of economic value and wealth and sometimes even shapes, front-page through export activity, and the enhance- news and events with potentially global 50 ment and the raising of standards of living impact. Geopolitics, territorial disputes, pro- through import and export activity.” nouncements by central bankers, multilat-

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eral trade negotiations , concerns about demonstrably positive impact in a wide organized crime and money laundering or range of areas, in the toughest or most terrorism financing: every one of these el- challenged (and challenging) markets on ements is part of the context in which the planet. trade financiers operate. The complexities and challenges of Lesson 4: Trade financiers on the front lines commerce are significantly amplified when The old investigative technique of ‘follow- business crosses borders, as are the intrica- ing the money’ works. It works so well, that cies of finance. The same is true for the op- governments have effectively recruited fi- portunities, both for enabling the success of nancial institutions, especially trade and in- clients, and for the personal and profes- ternational bankers, in enforcement sional growth of those engaged in work that activities linked to money laundering and has an international, even global scope. terrorism finance. “What happens on the world stage has “We are all very aware of this aspect of a direct impact on trade and trade fi- our work: it permeates everything we do nance: global events are not simply noise today in the financing of international in the background. If sanctions are im- commerce. Trade financiers are on the posed on a country or a party, business is front lines of global policy execution and impacted that day. The scope of interna- enforcement related to money laundering tional commercial activity requires practi- and terrorism finance”, says Paul. tioners to expect periodic twists and turns: While the post-crisis focus on banking expect the unexpected.” system stability has placed a great deal of focus on regulations linked to capital ade- Lesson 3: Engage in the community quacy and the financial strength of banks, It is extremely important and valuable for there is equally critical focus on other re- practitioners – and for industry stakehold- quirements linked to cross-border law en- ers – to engage in industry-wide initiatives forcement. This is partly due to the nature to proactively shape the landscape. Histor- of trade finance: a business that is cross- ically insular approaches within individual border, with instruments and practices that financial institutions, or as relates to the ca- are well-understood and trusted all over reer paths of individuals, are no longer vi- the world. Those same characteristics, criti- able in a world where complexity and cal to the facilitation of legitimate com- global reach demand a highly networked merce, are tempting to those seeking to approach. move illicit funds for criminal purposes or One or two people can make a signifi- worse. Vigilant trade finance specialists cant difference, and it is critical today for can, and have, played a critical role in halt- leaders and emerging leaders to focus on ing such transactions and in collaborating bigger-picture issues, such as current indus- with authorities in resulting investigations. try concerns about economic value-cre- ation and the re-development of trust with Lesson 5: Put your client first the communities served by financial insti- Banks and bankers have talked for years tutions. Recent initiatives around sustain- about the importance of being client-fo- able trade and the development of a cused or client-centric, specifically ac- trade finance mechanism supporting sus- knowledging that the silo and tainable trade are illustrative. product-based organizational structures The impact of well-focused energy can of financial institutions are no longer fit for be direct and very meaningful; trade fin- purpose. The degree to which such client- 51 anciers can create value, and can have a centricity has been achieved in practice www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

varies greatly, and it is probably fair to say sustained significant reputational dam- that the industry still has significant work to age, and has collectively lost billions in do. It is worth noting, too, that the compet- shareholder value. itive environment has changed materially Despite this backdrop, Johnson focuses in the last decade, and particularly since on the belief that bankers overwhelmingly the peak of the global crisis: there are now seek to do well, serve their clients, and in- external factors, including the existence of creasingly, recognize the importance of alternative providers, that will compel doing good. While it might not always be banks to become client-centric at a faster apparent, the industry does learn from its pace. experiences, as trade financiers learned “At the highest level”, observes Paul, from a crisis in Kazakhstan some years ago. “clients face similar challenges and are The lessons then were about the impor- looking for common solutions that require tance of industry collaboration and advo- bankers, even specialists like trade finan- cacy, but also about the long-held view ciers, to be able to have serious conversa- that trade obligations are more likely to be tions with a decidedly commercially view settled in the event of political crisis or de- that extends beyond the product and silo fault: in the end, this was shown to be the mindset. Senior bankers must not lose sight case, and bankers learned that full recov- of the commercial ‘mission’ from a client’s ery might be feasible against trade obliga- point of view, and having understood this, tions, while working capital structures can then proceed to offer tailored, effec- might be settled at 20%-30% of face value. tive solutions instead of standardized prod- Each of the foregoing lessons has, at its ucts in support of that end-mission.” core, a realization that trade – and trade Relatedly, Johnson promotes the notion finance – is a ‘people business’. “Moti- that bankers, including trade financiers vated and competent people are critical must see their client needs, and their insti- to success in trade finance”, notes Paul. tutions’ capabilities as holistically as possi- “This can be a complex business, and 24/7 ble, bringing to bear, for example, the full in activity across every industry sector and suite of global transaction banking capa- client segment, from agri-food and com- bilities to assist a client when needed. modities to manufactured goods, technol- “Relatively few banks are capable of ogy and service sector trade. On the delivering integrated solutions in this way”, financing side, it’s about networks, skilled says Paul. “There are operational, systems professionals, trusted colleagues and and staff capability limitations, but it is both global reach.” possible and necessary to rise above such Banking has significant work to do to re- constraints – to work actively so that inter- habilitate its image in the world, and the nal organisational limitations are not im- global system of international commerce posed on a client.” has its imperfections. However, trade finan- ciers occupy a unique, high-value and Lesson 6: Reputational issues are critical; high-impact role in the support and facili- this is a people business tation of cross-border commerce. There is It is difficult not to acknowledge that the a noticeable difference between a banking industry has suffered some self-in- banker who happens to work in trade fi- flicted injuries to its reputation, and through nance, and a trade financier who hap- the actions of a relatively few who either pens to work for a bank – just as there is a seek to exploit their positions of trust, or fundamental difference between some- 52 demonstrate striking levels of incompe- one doing a ‘job’ and someone passion- tence, continues to do so. The industry has ately pursuing a vocation. ■

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Quiet revolution: common network brings trading counterparties closer

After years of being underutilised, elec- more each member benefits. This is where As trade finance tronic document presentation (ePresenta- the technology has commonalities with a technology tion) has now become more understood sustainable and connected trading becomes more and sought after than ever before. In cer- ecosystem, where all engaged parties co- routine, international tain commodity sectors, accelerating exist to their mutual benefit. trade is getting more adoption has seen the technology be- The fact that previously separate trade connected. Ian Kerr, come used on a regular basis, a trend that chains have common connections brings CEO Bolero will doubtless continue. individual organisations, their trading part- International, looks This quiet revolution has been a long ners and the wider community much time in the making. Looking back, when closer together in an evolving and ex- at the growing the technology was first developed in the panding trade cycle. The more connectiv- business case for late 1990s, the market simply wasn’t ready ity that exists in this environment, the more ePresentation. to connect the trade process electroni- value that different trading, shipping and cally and adoption was low. Increasingly banking partners will see. however, technology providers and their clients, partners and respective trading Common interests counterparties are realising that the ad- A great deal of value in ePresentation and vantages of the technology – and the the underlying technology comes from its business case for it – lie in the network. ability to legally replace paper documents The more counterparties that use a se- with ‘original’ and universally-accepted cure, reliable connectivity platform, the electronic ones, minimising the time they

A great deal of value in ePresentation and the underlying technology comes from its ability to legally replace paper documents with ‘original’ and universally-accepted electronic ones, minimising the time they 53 spend in transit. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

nance ecosystem. Day-to-day, having a universally accepted platform in common makes the process of completing transac- tions with banks that are linked to carriers, for example, much more straightforward. As more and more organisations are brought together, this wider and broader connectivity not only makes the process of doing business easier but also gives organ- isations a mutually trusted platform and as- sured transaction integrity. In turn, closer co-operation between the different parties becomes more practical. Organisations that have this common link are better- equipped to join together to tackle threats such as fraud, not least because they have opportunity to use the network to broaden Ian Kerr, CEO Bolero International their trading relationships and develop closer connections with existing partners. spend in transit. Moreover, the electronic Bill of Lading (eBL), a critical component to Industry accepted, market tested full ePresentation, is also substantially more Recent consultations between the ship- secure than its paper equivalent, reducing ping association BIMCO and the industry risk and ensuring users are automatically culminated in a new clause which now more protected. gives eBLs the same status as paper bills of The speed of electronic documents lading under the terms of the charter also reduces the likelihood of goods hav- party. Normal protection and indemnity ing to be discharged prior to the surrender (P&I) insurance liabilities are also covered of the bill of lading. This in turn reduces the by the clubs to the same extent when need for letters of indemnity. As well as ac- using eBLs as their paper equivalent, re- celerating delivery of the document, the moving any perceived risk. ability to exchange ‘machine readable’ To encourage broader adoption, tech- structured data also creates further oppor- nology providers have also re-evaluated tunities for straight-through processing in the benefits to the different counterparties, both banks and corporate enterprises. ensuring that the commercial benefits to Yet while previously, the business case enterprises, carriers, banks or any other and advantages of ePresentation and the partners or counterparties are more ap- digitisation of trade documents have con- parent and in line with their own business centrated on these operational and cost- requirements. saving benefits, the potential gains that At an individual and organisational organisations are seeing when joining a level, changing attitudes and factors have common technology network should also also raised interest in ePresentation. Doing not be underestimated. business electronically is now common- As with other communities, the most place in work and personal life. Likewise, the compelling aspect of the technology is technology itself has evolved significantly not the participation of any one individual and the number of large corporate part- 54 organisation but the collective power of ners using it has increased, prompting their being part of a connected ‘living’ trade fi- trading ecosystems to take a fresh look.

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Leading the charge in using ePresenta- rolled out in container shipments too, with tion is the commodities sector, with many multiple carriers now using container eBLs others starting to follow suit. The reasons for effectively and with confidence. this are both internal and external. Exter- nally, in the post-boom years market con- Globally applicable, mutually ditions have toughened significantly. advantageous Commodity prices have dropped, China’s Organisations that are already using ePre- economy has slowed and the unprece- sentation have been quick to see the ben- dented demand for materials has re- efits of improved working capital, reduced duced. At the time of writing, this had days sales outstanding (DSO), accelerated culminated in a 35% fall in the price of iron time to cash and effective credit line man- ore since the beginning of 2014. agement and usage. With limited control over these external However, these important business pressures, many commodity firms have gains are by no means restricted to any looked inwards and are now using ePre- one particular sector or business type. sentation to speed-up and streamline their While there has been a lot of traction in trading processes. Crucially, this has helped the commodities sector and among Chi- some businesses to overcome the direct nese banks, exporters and their trading costs they incur when paperwork does not partners, organisations in South America reach the recipient on time. and India are also showing strong interest With consignments often worth millions in these new trade flows. of dollars, ensuring that transactions are As a concept, ePresentation is interna- completed efficiently and revenue is tionally relevant. By integrating corporate recognised at a reduced cost is key. Like- enterprises, local or global bank and logis- wise, high-value international shipments tics service providers harmoniously with the often change hands several times be- growing network of connections and col- tween leaving port and arriving at their laborations continuously being made in final destinations, which makes control the trade sphere, the technology is in- over the electronic eBL in particular ex- creasingly creating a more connected tremely critical as the transaction moves and efficient working community. The more through the process. transactions are processed and con- The fact that this electronic document cluded, the more the commercial business underpins the legal ownership of the ship- case will be realised. ■ ment also offers a key advantage, making it tough for fraudsters to use fake paper BLs to seize ownership of goods and com- Ian Kerr is CEO at Bolero International: modities. For these reasons, as well as www.bolero.net being used in bulk, eBLs are also being Twitter: @Bolero_InterLtd

With consignments often worth millions of dollars, ensuring that transactions are completed efficiently and revenue is recognised at a reduced cost is key. 55

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Improving the efficiency of FSCM to establish a ‘win-win’ situation

Frank-Oliver Wolf, Increased globalisation means that corpo- rate competition is greater, counterparty global head of cash rate competition is at its most intense. As risk is higher and supply chains are more in- such, companies must explore new tech- tricate and geographically diverse. While, management & niques if they want to stay ahead. While traditionally, companies invested heavily in international the ultimate aim of finance directors of their physical supply chains with consider- business at multi-national companies remains un- able success, today, contract negotiations Commerzbank, changed – optimising profit and liquidity with foreign trade partners no longer focus explains how while mitigating risk – they are now realis- purely on prices, delivery times and prod- enlightened ing that the traditional method of solely fo- uct characteristics. It is becoming more companies are cusing on improving working capital and more likely for business to be won or adopting a holistic efficiency is no longer enough. lost on the issue of financing. view of financial Heightened globalisation and in- This brings financial supply chain man- supply chain creased cross-border trade means corpo- agement (FSCM) to the fore. While the management (FSCM) in order that everyone reaps the Figure 1: Financial Supply Chain rewards.

56

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physical supply chain involves the sourc- ing, production and distribution of goods and services, the financial supply chain fo- cuses on the flow of financial information and money in the opposite direction (see figure 1). FSCM therefore recognises and analyses interrelated events to optimise these financial flows within a company and between business partners. With this view in mind, realising the in- terconnected nature of the financial sup- ply chain is essential. And as the flow chart highlights, it is possible for one weak link to damage the entire chain. For example, when the Tsunami hit Japan in March 2011, major local suppliers were com- pletely wiped out, resulting in a negative impact on their worldwide buyers and the Frank-Oliver Wolf, global head of cash associated supply chains. management & international business at So how can trading companies man- Commerzbank age the links in the chain to make sure everyone benefits? The key is to look at the should therefore lean on their financial in- financial supply chain holistically, using stitution partners, leveraging their local ex- trade instruments to implement practical pertise and working with them in order that solutions that can ensure the chain’s finan- all parties ‘speak in the same language’. cial viability and profitability. Large international correspondent bank- While the FSCM concept is not new, ing networks can help here; offering local focus is now shifting from theoretical dis- insight, increasing transparency and miti- cussion to practical implementation. Real- gating risk. ising the advantages of a holistic approach to FSCM is the first step, the sec- A holistic approach to FSCM ond is to install the necessary building While working capital management looks blocks for successful implementation. To internally to increase revenue – by optimis- achieve tangible benefits, companies ing each individual internal process – a ho-

While the FSCM concept is not new, focus is now shifting from theoretical discussion to practical implementation. Realising the advantages of a holistic approach to FSCM is the first step, the second is to install the necessary building blocks for successful 57 implementation. www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

listic approach to FSCM looks to support pliers burdened with high interest rates. In and strengthen the structure of the entire this respect, a ‘win-win’ situation may arise supply chain, from customers (order to when a supplier is located in a high-inter- cash) through to suppliers (purchase to est rate country, such as Brazil, and is sub- pay). This can offer a significant competi- ject to less favourable interest rates than tive advantage. their buyers abroad. In all likelihood, this Typically, buyers and suppliers would high cost of financing would be reflected compete with one another to increase in higher costs of goods. Yet, by approach- their respective revenues; while the im- ing the supply chain holistically and recog- porter would seek extended payment nising this, corporates can help their terms, the exporter demands faster pay- suppliers – working with their bank – to ob- ments. In order to maintain a working rela- tain financing at more favourable rates. tionship, often the supplier would grant The potential outcome: better liquidity for extended payment terms and potentially the supplier and lower cost of goods for use expensive short-term borrowing to re- the buyer. lieve the pressure. However, to compen- What is more, such a holistic approach sate for this extra cost, unit prices might can have real impact on business perform- increase, and in turn, the competitiveness ance – increasing revenue and improving of both parties decrease. So, with the ho- client relationships (by allowing companies listic approach to FSCM in mind, how is this to provide longer payment terms for buy- resolved? ers). Better client relations will lead to a One way is for the buyer’s bank to take more reliable supply of goods and serv- over the financing side of the supplier – ices, thus increasing the number and loy- through forfaiting or the purchase of cov- alty of customers – ultimately this virtuous ered receivables, for example. This way the cycle will have a positive impact through- buyer receives extended payment terms out the entire supply chain. and the supplier obtains immediate pay- ment. If companies adopt the holistic view Building blocks to FSCM – from the supplier all the way However, for companies to reap the re- through to the customer – while realising wards that can be derived from adopting the interlinked benefits to each unit, they a holistic approach to FSCM, it is essential will avoid pushing the cost down the chain that there are certain building blocks in and increase the competitiveness of all. place: and here the onus is on their bank- Another way to avoid pushing cost ing partners. It is clear that implementing down the chain sees buyers helping sup- holistic FSCM solutions over supply chains

We predict that, over time, a growing number of widespread organisations, together with suppliers and customers, will recognise how the practical implementation of FSCM will reduce cost, enhance liquidity 58 and ultimately increase competitiveness.

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that may stretch continents and time documentation: increasing document zones is no mean feat – doing so effec- and policy transparency and standardisa- tively therefore requires local expertise (at tion – particularly for small or medium sized the same time as a global footprint), a companies (SMEs) – is important in bridg- common consensus and a personalised ing the gap between banks and their approach. clients as it minimises the possibility of de- fault risk if everyone can see exactly what 1. Utilising local expertise is going on. Utilising local expertise is key. Recognising Yet, while document standardisation the global nature of multinational corpo- should be welcomed, it is clear that FSCM rations’ supply chains, finance managers solutions must be, at the same time, individ- rely on advice from banking consultants ually tailored to account for the unique- based all over the world. These local advi- ness of each supply chain. This is significant sory service teams work closely with cus- because international supply chains fre- tomers and project managers to facilitate quently connect companies from a range ‘end-to-end’ solutions that can be of different profiles; therefore banks need adopted globally, whilst respecting local to look to meet these individual needs by regulations and conventions. bringing together different departments In this respect, a large international cor- from within. For example, German SMEs respondent banking network can help may have a variety of global suppliers and FSCM to work effectively – particularly customers of different sizes and industries. when a buyer engages in business with an To understand the specific needs of an or- unknown international supplier for the first ganisation’s financial supply chain, banks time. Local partner banks can perform risk can analyse customers’ balance sheets, its and asset assessment, as well as company imports and exports, as well as its days profiling, to significantly reduce counter- payable outstanding (DPO), days inven- party risk. What is more, it is only by having tory outstanding (DIO) and days sales out- local banking partners “on the ground” standing (DSO) – in order to tailor specific that larger banks can truly understand the solutions to each individual company potential impact on financial supply within the chain. chains of political upheaval or regulatory Indeed, it is important that corporate change, for instance, as well as the likeli- customers realise that there are no stan- hood that it may occur. Implementing suc- dard solutions for efficient working capital cessful solutions is therefore reliant on this management and financial supply chain local knowledge. management. Advisory services can only be efficient when a bank devises solutions 2. Speaking the same language specific to the customer’s needs. Of course, local knowledge can only take We predict that, over time, a growing you so far, and much of the real efficien- number of widespread organisations, to- cies from FSCM come when buyers, suppli- gether with suppliers and customers, will ers and their banks ‘speak in the same recognise how the practical implementa- language’, sharing a common view and tion of FSCM will reduce cost, enhance liq- goals. For instance, a buyer can only know uidity and ultimately increase that its supplier in Brazil is finding financing competitiveness. While few singular tech- expensive to come by if it’s willing to share niques can achieve a win-win situation this information. As such, transparency can alone, holding a holistic view to financial be a real enabler of effective solutions. supply chain management is essential to 59 And this also extends to trade finance any company’s future success. ■ www.tagmydeals.com www.txfnews.com Trade & Supply Chain Finance in 2014

Making trade flow in 2020: the role of payment and finance solutions

Dominic Broom* – A global payments revolution is underway. much more than a mere commoditised Both for traders and for consumers, how transfer of value – although that will of head of sales and we pay and receive payment is likely to course remain essential. No payment hap - relationship look very different in 2020 compared to pens in a vacuum; each is surrounded by management, today. Technology, global trade flows, a host of ‘payment-proximate’ activities; Treasury Services choices of currency, and regulation are all from trade-related financing and risk miti - EMEA, BNY Mellon – changing rapidly and shaping customer gation, to investment decisions, or maybe explores expectations; and payment service the cross-border movement of salaries and developments in providers, in turn, are developing a variety pensions. By 2020, both banks and non- technology, global of strategies to meet these changing de - bank providers will be offering their cus - trade flows, choices mands. tomers a lot more strategic value through of currency, and We live in exciting times. After some their payment services around these activ - regulation and sluggish years, global trade flows are now ities. examines how they on the increase and are expected to con - While much of this change has been may help oil the tinue to grow. Their nature and composi - triggered by new technology, there are un - wheels of global tion will continue to change; reflecting the derlying competitive, economic and geo - growing participation of emerging and graphic shifts. A lot of it is consumer-led, but trade. developing economies in global trade. developments in the retail and consumer At the same time, the ways in which payment business are starting to exert a consumers and businesses pay for the significant influence on the evolution of goods they trade and buy, are undergoing commercial and corporate payment solu - a period of fundamental transformation. A tions, as a new generation of tech-savvy host of factors – technological, economic business leaders demand corporate pay - and regulatory are at play, sparking ment functionality that matches those change in every aspect of the payments available in the retail space. landscape. Most obvious is the accelerat - ing pace of technological innovation, and New technology the appearance of new types of ‘non- Technological change ranges from signifi - bank’ payment providers. cantly enhanced functionality and trans - The changes are in fact more funda - actional capabilities, to great innovative 60 mental still. Between now and 2020, pay - leaps; for example, undertaking financial ments will be more widely recognised as transactions through social networks or

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other emerging capability-rich platforms. Major markets are shifting away from tra - ditional payment mechanisms to emerg - ing solutions and providers. Not all change is originating where one might expect. Mobile payment solutions, for example, have not just been devel - M oped to tempt smartphone- (or tablet-) wielding consumers in developed economies, but have in fact established theSmse lve s widely in so m e devel op ing countrie s, which lacked a co nvent io nal payments in frastruc ture. Here, t hey have been dep loyed to financ ially enfranch ise entirely new po ols of custom ers; th e most    notable suc cess being th at of Kenya’s M-          Pesa, whic h enables million s of unbanked         mobile p h one us ers in Ea st Afric a and be - Domi nic Broo m* – h ead of s ales a nd yond to make secure low valu e elec tronic re lation ship m anageme nt, Tre as ury Serv ice s EMEA, BNY Mellon transfe rs usi ng their mo bile p hones. This is an in stance of ‘techn o logica l leapfrogging’ encountered elsewhere in digital payment platform, supported by all the global evolution of payment solutions. banks operating there, by the end of 2015. Unenc umber ed by lega cy t echn ology, a developing economy ‘leapfrogs’ over its The emergence of non-bank providers more developed counterparts, rolling out Technological change has also enabled cutting-edge technology to meet the new types of non-bank providers to enter needs of potential customers for payment the payments market; M-Pesa (developed

by Vodafone) being a case in point. Pay - solutions . An ot her dif ferent e xample is th e United Ara b Em irat es’ pro je ct, to b e th e Pal’s global success is an illustration of the first country to provide a fully integrated extraordinary growth potential of elec -

Consumers who have u sed their m obil e pho nes to make a p ayme n t over the past 6 months

66% 64%

48% 45% 45% 37% 30% 30% 23% 21% 21% 21% 15% 13%

61 Source: Innopay, Mobile Payments 2013; The Global Rise of Smartphonatics, AITE & ACI Worldwide  www.tagmydeals.com www.txfnews.com

40 Trade & Supply Chain Finance in 2014

tronic platform-based payment solutions. collaborative partnerships have the poten - It added almost five million active ac - tial to bring a number of benefits through counts in the third quarter of 2013, and its the leveraging of complementary capabil - revenues for Q3 2013 were $1.6 billion, ities, and access to additional expertise as growing 20% year over year . well as new reservoirs of customers. Technology, telecommunications and social media companies, and online retail - Convergence ers of the likes of Google, Facebook, Ama - Growing technological capabilities nur - zon and Apple are vying to get a foothold ture growing customer expectations. The in the payments industry, hoping to exploit vision for 2020 is for a global payments their considerable customer reach by of - platform providing 24/7 service on a near fering attractive, straightforward and se - real-time basis, across multiple currencies, cure payment propositions alongside their geographic regions and markets; with sig - more established commercial offerings. nificant convergence in the quality and Some see them as a potential threat to scope of solutions available, as well as be - banks, particularly in growing segments of tween the expectations and capabilities the global payments business. Elsewhere of both consumers and business users. At competition looms from network solution this point, making and acknowledging a providers, whose business models are re - payment will be well on the way to be - shaping global markets, changing the way coming as easy as sending an e-mail, for multi-currency capabilities are delivered, both consumer and commercial cus - and threatening the value proposition of tomers. traditional correspondent banking models. A lot still needs to happen before this is It is true that some banks have tended the case, by way of integration and con - to be too conservative and slow to adapt vergence of payment platforms and, criti - to change, and it is these that will quickly cally, of regulatory structures. Alongside need to become more flexible and proac - fundamental change, convergence is tive in gearing up to their customers’ likely to be the other keynote in the evolu - changing needs, if they wish to thrive in the tion of the global payments over the next payments landscape of 2020 and beyond. few years. One step many are likely to take is to forge In particular, interoperability of infra - strategic cross-sector and even cross-indus - structures across markets will be a core as - try alliances, with new kinds of partners, be piration across regions, despite the they non-bank competitors or specialist differing pace of development and the (non-competing) global providers. Such impact of ‘leapfrogging’ discussed above.

Some banks have tended to be too conservative and slow to adapt to change, and it is these that will quickly need to become more flexible and proactive in gearing up to their customers’ changing needs, if they wish to thrive in the payments 62 landscape of 2020 and beyond.

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The technology environment is expected ing visibility on transaction status and pay - to stabilise and level off through decom - ment flows. This will require significant in - missioning of legacy systems, technology vestment on the part of providers in adoption, and the increasing engage - technology, channels and processes. ment of non-bank solution providers. It is also expected that the market will The benefits for trade reflect far greater alignment of regulatory Turning to trade, we live in an increasingly frameworks, a more balanced geopolitical globalised world, in which the shape and environment in terms of the exercise of po - direction of trade flows is rapidly changing. litical and commercial influence, and that Inter- and intra-regional payment streams at least one fast-growing currency option, are increasing, and industry expectations the renminbi (RMB) – already the second- regarding trade finance are evolving, both most utilised currency in trade finance – in terms of additional trade finance prod - will begin to rival the US dollar’s domi - ucts and in terms of the potential develop - nance in international commercial settle - ment of supply chain finance m ent. Against this background, payment programmes. providers will be able to develop proposi - Payment providers must not only keep tions across a broad spectrum of solutions up with the latest developments in tech - and across borders, as flows of economic nology, but also align themselves better value become increasingly multi-polar. with corporate customer needs, providing In addition, providers are seeing de - a springboard to help those trading mand for value-added data-driven analy - around the globe to enter into new rela - sis, including predictive analytics, aimed at tionships, close new deals and open up assisting clients with financial decision profitable new lines of business. Trade flows making: a sea-change from simply provid - provide an excellent example of how pay -

TradExhibite flo w3 s are concentrated in some specific ‘corridors’ Trade flows are concentrated in some specific “corridors”

Trade > 20% of total/growth Trade > 1% of total/growth Total cross border trade,1 flows growth (2007-12) Trade > 10% of total/growth Trade < 1% of total/growth $ billions Trade > 5% of total/growth

Trade Trade flows to Latin Middle North flows from Africa Oceania Asia Europe America East America World 2012 56 8 214 232 21 24 83 638 Africa Growth 29 6 140 65 7 10 (9) 249 2012 5 19 229 25 5 10 17 309 Oceania Growth 2 6 131 3 2 4 3 150 2012 160 162 2,963 903 296 321 983 5,788 Asia Growth 94 76 1,248 215 161 177 217 2,188 2012 193 60 856 4,557 173 315 522 6,676 Europe Growth 81 23 410 851 80 96 76 1,617 Latin 2012 23 6 253 159 213 21 502 1,177 America Growth 11 4 169 44 87 11 135 460 Middle 2012 53 10 780 204 14 129 140 1330 East Growth 28 5 454 61 8 70 54 680 North 2012 38 39 476 304 383 92 587 1,919 America Growth 18 13 160 38 151 46 67 494 2012 527 304 5,772 6,384 1,105 911 2,835 17,837 World Growth 264 133 2,712 1,277 496 413 543 5,839

63 Sour ce: P utt ing G rowth Ban k on t he Banking Agenda, McKinsey & Company and SWIFT, 2013 www.tagm y deals.com www.txfnews.com

Trade & Supply Chain Finance in 2014

ments are changing with regard to the and this has given rise to the development greater provision of value-added solutions, of mechanisms aimed at supporting global as before or after every payment a service supply chains through payment and fi - provider can offer significant support in nancing solutions, with a specific intention terms of financing and risk mitigation. of also benefitting small and medium en - The Bank Payment Obligation (BPO), terprises (SMEs). These solutions increasingly developed by the Paris-based Interna - seek to integrate risk mitigation solutions tional Chamber of Commerce (ICC) and and, more recently, ‘real-time financing’ as SWIFT, is one such example. Introducing a part of their value proposition to importers new trade financing and settlement and exporters across the globe. mechanism, that is underpinned by tech - Working towards 2020 and beyond, nology and driven by data, into a business banks and other payment providers will that has been paper-based for hundreds continue to devise strategic value-adding of years, is a huge step forward. solutions around payments and trade fi - Using technology to extract and match nance, to help those trading around the data submitted by the importer and ex - globe mitigate their trading risk, enhance porter to determine whether agreed com - their cash flows, and leverage emerging mercial terms and conditions have been opportunities to grow their businesses. fully met and the payment can be trig - We’re on the cusp of a new era of pay - gered, the BPO substantially speeds up the ments – and trade can only benefit. I settlement process, reduces subjectivity re - lating to the payment decision, and offers *Dominic Broom has been head of Treas - wider scope for financing across the lifecy - ury Services EMEA at BNY Mellon since Au - cle of a trade transaction. The introduction gust 2011. He first joined BNY Mellon of a set of ICC-authored global rules on Treasury Services as head of market devel - the use of BPO instruments is expected to opment EMEA in September 2006. With ex - accelerate its uptake. tensive experience in transaction services, On the supply chain side, the evolution he has helped to develop BNY Mellon’s of supply chain finance in the context of range of transaction banking services, international trade illustrates the way in and has played an important role in grow - which payments or financial settlements fit ing the sector’s business activities through - into this broader, value-adding framework. out EMEA. He also sits on BNY Mellon’s There has been a near-global shift EMEA operating committee. He has also away from established payment and fi - held positions at Chase Manhattan, War - nancing mechanisms such as documen - burg Dillon Read, Standard Chartered and tary credit, towards open account terms, ABN AMRO.

Inter- and intra-regional payment streams are increasing, and industry expectations regarding trade finance are evolving, both in terms of additional trade finance products and in terms of the potential development of 64 supply chain finance programmes.

www.tagmydeals.com www.txfnews.com A high-levelhigh-level internationalinternational gagatheringthering thathatt eexploresxplores the kkeyey trtrendsends in trtradeade & trtreasury,easuryury, including:

WHATWHAATT DOES WORKING WORKING BESTBEST PRACTICESPRACTICES IN TRADE CAPITALCAPITTAAL OPTIMISATION OPTIOPTIMISAATTION MEAN FINANCE EFFICIENCYEFFICIENCY FOR CORPORATES?CORPORAAATTES? JORGEN HOLMGREN JOSEJOSE CARLCARLOS-CUEVASOS-CUEV-CUEVVAAS DirectorDirector of CorporateCorporate Finance,Finance, TTreasurerreasurer (Europe),(Europe), AlstomAlstom VolvoVolvo

HOHOWW CAN WE MAKE THE MOMOSTST OF THE MOMOVEVE TTOWARDSOWWAARDS WHATWHAATTART ARE THE DIGITSATIONDIGITSAATTION AND A PPAPERLESSPAAPERLESS COMPONENTSCOMPONENTS OF THE TRADE? PERFECT SUSUPPLYSUPPLPPLLYY CHAIN?CHAIN?

ALAN ADADAMSONAMSON THOMASTHOMAS DUNN GeneralGeneral Supplyy Chain ManagerManager,r,, Chairman, Orbian CarCargillgill

WHATWHAATT TRENDS TRENDS ARE WE SEEING IN GLOBALGLOBAL TRADE? WILL SOUTH- SOUTH TRADE BE DOMINANT IN THE NEXT CHAPTER OF TRADE FINANCE?

REBECCAREBECCA HARDING CEO,CEO, Delta EEconomicsconomics

ForFor moremore informationinformation or ttoo join the eevent,vent, please email: [email protected]@txfmedia.com

PPARTNERSARTNERS C COCKTAILOCK TAIL AASSOCIATION SSOCIATION MEDIA SPONSOR PPARTNERS ARTNERS PPARTNERSARTNERS Deutsche Bank Global Transaction Banking

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