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Putting Innovation into Practice: Trade Finance for the 2020s The start of a new decade has ushered in a variety of market developments that have the potential to redefine the trade finance sector. We caught up with Jean-François Denis, BNP Paribas, to explore the changes on the horizon and how they might benefit corporate treasurers.

Putting Innovation into Practice: Trade Finance for the 2020s

Putting Innovation into Practice:
Trade Finance for the 2020s

By Eleanor Hill, Editor


While many aspects of trade finance have remained unchanged for centuries, at the start of a new decade a variety of drivers are offering the tantalising possibility of redefining the sector. Eleanor Hill, Editor, recently caught up with Jean-François Denis, Global Head of Trade Solutions and Network Management at BNP Paribas, to explore the changes on the horizon and how they might benefit corporate treasurers.


Eleanor Hill (EH): What do you believe will be the key trends impacting trade finance in 2020?

Jean-François Denis

Jean-François Denis
Global Head of Trade Solutions and Network Management,
BNP Paribas

Jean-François Denis (JFD): In my view, there are four key trends that will impact the sector – they might not be revolutionary, but they are extremely important to pay attention to. The first is the geopolitical environment. As a result of international trade tensions, we are already seeing shifts in terms of trade routes and risks. As a result, corporates are looking for risk mitigation instruments to ensure that their international trading activity remains secure.

A second, ongoing, trend is corporate centralisation. While this is a long-standing treasury trend from a cash management perspective, it is now filtering into the trade world. Some large corporates are already centralised and use a bidding platform for guarantees, for example. And an increasing number of our clients are equipping themselves to have better visibility and control over their trade activities, using technology.

Trend three, which is linked to the previous one, is the search to implement greater connectivity between corporates, banks and other stakeholders in the trade ecosystem. One of the main ways we are seeing this happen is through the use of SWIFTNet for Corporates for transmission of trade guarantees. We expect to see greater uptake in 2020 and beyond.

The final trend to mention is the large number of trade finance initiatives and market innovations. Some of these are about to enter phase two, moving beyond the proof of concept. As such, these initiatives now face an acid test as to whether they can become concrete solutions in production, or not.


EH: On that last point, many of these initiatives have focused on digitising trade. Do you think that paperless trade finance is actually within reach?

JFD: It depends on the product you’re looking at. If you take guarantees, then yes, I would say that paperless processes are possible and actually happening now. Progress here has partly been driven by the fact that only a small number of stakeholders need to align in order to create a digital workflow for guarantees. There are also a variety of standards that can be used, so all that needs to be done is for the applicant and provider to agree to use a digital channel. That said, this area would benefit from global standards in order for digitisation to gain wider traction.

Supply chain finance is also becoming less paper-based, although there is still some way to go. There are greater challenges here because more stakeholders are involved than guarantees. Nevertheless, we are seeing supplier onboarding platforms starting to flourish.

Documentary credit is different as there are so many stakeholders to align. Furthermore, digital documents such as the electronic Bill of Lading are not recognised everywhere. As such, there is a long road ahead to achieve paperless documentary credit. But BNP Paribas is making progress towards this goal with its involvement in Contour.

 

Trade Innovations Defined

Marco Polo 
Launched in 2017, the Marco Polo Network provides an open enterprise software platform for trade and working capital finance to banks and corporates and a distributed, blockchain-powered solution that allows for the seamless and secure exchange of data and assets between participants.

Trade Information Network 
Founded by ANZ, BNP Paribas, Citi, Deutsche Bank, HSBC and Standard Chartered, Trade Information Network is open for buyers, suppliers and banks. The Network enables the provision of financing deeper into global supply chains. Through the Network, corporates can communicate their trade information and raise finance requests in a trusted and secure way to participating banks of their choice. Banks will provide financing outside of the Network using their existing channels, processes and practices.

Komgo
Blockchain technology has been used to create a decentralised, open-source and secure commodity trade network. Komgo’s blockchain ledger transmits peer-to-peer transactions in a secure environment providing full visibility to both participants, but storing only references to the data in the digital network itself. Records of transactions are available only on a need-to-know basis.

 

EH: For those readers not familiar with Contour, what is it?

JFD: Contour, formerly known as Voltron, is a blockchain-based platform aimed at digitising the letter of credit process. The company shareholders are Bangkok Bank, BNP Paribas, Citi, CTBC Financial Holding, HSBC, ING, SEB and Standard Chartered, Bain, Cryptoblk and R3. The idea is to grow and optimise the industry for all stakeholders.

For corporates, Contour will offer speedier transactions. In addition, it will reduce complexity and paperwork through digitisation and offer a single, simplified channel providing a real-time view of progress.


EH: How is the Contour initiative progressing?

JFD: As we speak, Contour is moving from a collaborative initiative to a functioning company. The company has been established and the CEO and a few other team members have been appointed.

We will work on increasing live commitments and transactions from clients. We will also look to enrich the platform by going further in the value chain and plugging in a number of other solutions.

 

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