The theme at this year’s Sibos was Progressive Finance for a Changing World. There was a lot of excitement and buzz about this topic as a lot has changed in the industry over the last few years. The energy was very vibrant in Amsterdam – thousands of meetings and events took place throughout the four days. We were all very excited to be back, especially being the first in-person Sibos attended by Contour as a company.
Since the last Sibos in 2019, the digital transformation of the trade and trade finance industry has gained strong momentum, and while challenges still remain for the financial community to navigate the change, what’s clear is that there is no reversing the momentum.
In his opening remarks, SWIFT’s Chief Executive Officer, Javier Pérez-Tasso, said that the financial community must continue to collaborate, innovate and adapt in order to remain resilient.
One of the questions that emerged in many conversations was fintechs versus financial institutions, and how they would compete. When it comes to trade finance, the ecosystem is complicated. From exporters and importers, banks to large corporates and small- and medium-sized enterprises (SME), there are multiple parties involved in a single transaction. It is through collaboration, and not competition, that will bring all parties to together.
“The end game is not going to be a one-size-fits-all, winner-takes-all solution. It’s going to be connectivity that will win the game and the ability to connect to different parties…whether they’re from the physical or financial supply chain.”
– Carl Wegner, CEO, Contour
Banking on integration
From our conversations with the banking industry, collaboration is crucial to transforming the future of trade finance. As a leading fintech in this area, Contour is an example of this collaboration with 18 banks and counting in its digital trade finance network.
Our partnership with Finastra, which was announced at Sibos, is another example that will enable further transformation at scale. By integrating with Finastra’s Fusion Trade Innovation, financial institutions and corporates will now have access to external workflows and services that will enable them to process trade finance transactions seamlessly and securely.
Creating a connected ecosystem
In a live panel which Contour-hosted at Sibos, I noted that the end game is not going to be a one-size-fits-all, winner-takes-all solution. It’s going to be connectivity that will win the game and the ability to connect to different parties involved in a transaction, whether they’re from the financial or physical supply chain.
From the banks’ perspective, partnering with a fintech makes perfect sense.
According to Shinichiro Yamazaki, Managing Director & Head of Transaction Banking Solutions Department, Asia at SMBC, many banks are in a similar position where they’re not on top of the latest technology trends in documentary trade and partnering with a fintech helps complete the picture for their customers. Secondly, plugging into a network like Contour gives a Japanese bank like SMBC an instant global network and operation, which is beneficial to them as well as their customers.
For global trade bank HSBC, the integration approach could be white labelling or a bilateral or trilateral arrangement.
“We’ve created an architecture that allows us to work with over 25 different fintechs for different customer needs. The whole idea is to make trade simpler, faster and safer for our clients,” said Vinay Mendonca, Chief Growth Officer, Global Trade and Receivables Finance at HSBC.
Digitise now: Don’t wait for standards to be set
The digitisation of Bills of Lading (BL) has been gathering steam, though, only 2% of BLs are currently digital, which represents a huge opportunity.
HSBC is working with multiple partners to realise the value in digitising paper documents. While standardisation and interoperability will still take some time to materialise, Mendonca does see promise in the wider adoption of electronic Bills of Lading (eBLs).
“We expect to see accelerated adoption of eBLs, given the increase in the number of providers offering the solution and the backing of the largest carriers. While we have seen an initial uptick in use, what needs to be cracked is the adoption of house BLs, which will be relatively complex. If successful, this will result in an expansion of the ecosystem and industry wide benefits,” added Mendonca.
“Waiting for standards to come is not the solution. The same is true when it comes to digitising BLs – a lot more can and needs to be done, but playing the waiting game will just hold the industry back.”
– Carl Wegner, CEO, Contour
SMBC is part of a consortium in Japan and Singapore, experimenting through partnerships on what a potential solution would entail. Their approach – the more platforms they participate in, the closer they will get to a solution.
“There are several ceilings, different rules so the more the merrier. There’s no perfect solution now, but I guess the world is going in the right direction, which is optimistic,” said Yamazaki.
This is crucial when it comes to digital transformation, regardless of the industry. Waiting for standards to come is not the solution. The same is true when it comes to digitising BLs – a lot more can and needs to be done but playing the waiting game will just hold the industry back.
Our view has been that if the technology is there, we should jump right in and use it. Standards will come in, and everyone’s got to be able to adapt to those standards and be open to those standards as they become more codified.
Developing digital trade assets
Finally, as the financial industry looks towards the future, it is hard to ignore the growing fascination with the metaverse and digital assets. This is also evident in trade finance with a new wave of investor interest in trade finance assets going beyond the traditional bilateral bank distribution, and in some cases, going ‘full DeFi’.
By expanding who finances the trade and holds the balance sheet assets, this could generate increased demand for origination of these assets. This is an opportunity to reach unbanked SMEs and aggregate their flows to create new instruments.
From Contour’s perspective, these three pillars will drive the progressive change that the trade finance industry is facing right now. When all three work together, it will bring confidence and significant growth to trade and trade finance globally.