Building the New Financial Ecosystem
Collaboration and client-driven solutions powering the digital revolution
The transaction banking landscape is transforming in front of our eyes. With the field awash with new technological capabilities, Jan Kupfer and Luca Corsini, Global Co-Heads, Global Transaction Banking at UniCredit, discuss the latest trends, their likely impacts, and how the industry can draw together to maximise the benefits for all.
What innovations and trends are you seeing in transaction banking?
This year is a momentous one for the digitisation of payments. SWIFT’s global payments innovation (gpi), is already up and running – providing a secure and scalable cross-border payments solution that meets corporate demands in terms of speed and transparency. UniCredit launched a SWIFT gpi pilot with one of our financial institution clients back in January – a project that has grown to the point where, today, we are processing thousands of payments a month. And with 110 other major banks currently part of the SWIFT gpi initiative, momentum is set to continue building.
Moreover, the introduction of instant payments in Europe later this year will also have a profound impact. Banks and corporates alike are hard at work preparing for the switch, with many corporates – particularly in the B2C space – looking to adapt their operations to seize the new opportunities posed by real-time functionality. Sectors such as e-Commerce are particularly well placed to benefit – with instant receipt of payments meaning goods can be prepared, dispatched and delivered quicker than ever before. A prime example of this transformation phase is our collaboration with Alipay, the world’s largest online and mobile payment platform. Users can purchase goods and services in Italy simply by using the app to which they have grown accustomed. We are also the first bank in Italy to offer Apple Pay to its six million card-holder customers, making it possible to pay using Apple Pay in shops, through apps, and online.
UniCredit, again, is prepared for the shift. We recently started testing instant payments with RT1, EBA Clearing’s pan-European, real-time payment platform – a key milestone as we prepare to roll out euro instant payment products later this year.
On the trade finance side, the shift from traditional documentary trade to transacting via open account is causing relationships between buyers and suppliers to evolve – with supply chain finance programmes rising in popularity as a means of supporting smaller businesses along the supply chain in mitigating the risks associated with open account trading.
It can be no coincidence that this popularity spike comes alongside an increasing corporate focus on integration, co-operation and alignment among procurement, sales and treasury departments – the key players in any trade finance deal. Procurement, typically siloed within an organisation, is now much more closely aligned with the treasury in terms of goals and KPIs, and supply chain finance programmes are gaining favour for their capacity to address the potentially conflicting priorities of each department.
What impact are new technologies such as blockchain having in the transaction banking space?
Blockchain-based solutions haven’t entered the mainstream yet, but experimentation and testing of various use cases are well under way – and showing significant promise. Proof-of-concept projects, particularly in the areas of payments and documentary trade finance, bode well for the future, but in the short term, we will have to wait for significant impact.
Progress towards wider adoption and scalability, for instance, will likely be slowed by regulatory and legal issues, but we see mainstream adoption as an inevitability in the longer term. Achieving this will be a matter of promoting collaboration and consensus on technical specifications and formats, and, while this poses a considerable challenge, we can take heart from the fact that the vast majority of trade finance participants share a desire to move away from today’s slow and costly paper-based processes.
UniCredit, for its part, is actively involved in the development process. Along with six other European banks, we are currently working on a blockchain-based initiative called Digital Trade Chain (DTC), aimed at dramatically improving access to trade finance for European small- and medium-sized enterprises (SMEs). DTC will accelerate the order-to-settlement process, reduce paperwork, and facilitate transparent transactions from start to finish. The solution, designed to boost SMEs’ ability to onboard new trade partners throughout Europe, could become the first viable blockchain solution for trade finance to go live later this year.
Indeed, as bank resources become increasingly constricted, many banks are looking both to new technologies, such as blockchain, and existing tools, such as the Bank Payment Obligation, as highly efficient ways to meet the more standardised needs of clients. It’s an undertaking that breeds benefits in both directions. Banks improve efficiency and reduce the strain on human resources, while corporates enjoy more standardised, streamlined, and cost-effective solutions with improved geographical reach.
What role do fintechs have in the development of solutions?
Without a doubt fintechs have an increasingly important role to play, but it’s not necessarily the one many foresaw. While some transaction banks feared that fintechs would challenge their dominance, this now seems unlikely – not least due to the high level of product tailoring and risk appetite required for trade finance innovation.
Instead, collaboration between banks and fintechs looks to be the most fruitful approach – combining the industry know-how, resources and client base of banks with the innovation and agility of fintechs. Transaction banks are also proving useful as advisors to corporates in this space – giving their expert opinions on areas of promise and potential for specific collaborations. Certainly, client requests for information on the burgeoning fintech landscape is something we are experiencing more and more at UniCredit.