digitised trade: connecting markets and supply chain finance

Digitised trade: connecting markets

and supply chain finance 18th April 2016 - 09:00 BST

• Ruediger Geis, ICC Executive Committee and Head of Product Management, Trade, Commerzbank AG

• Alexander Malaket, ICC Executive Committee and President, OPUS Advisory Services International

• David Hennah, Head of Trade and Supply Chain Finance, Misys

1. Introductions

2. Digitisation in trade and supply chain finance - where we are today

3. Driving forces, challenges and opportunities

4. Standard definitions of techniques for supply chain finance

5. Current concepts of digital trade

6. The future of digital trade and supply chain finance

7. Q&A

Agenda

2 © Misys 18 April, 2016

3

Digitised trade: connecting markets and supply chain finance

© Misys 18 April, 2016

David Hennah, MIFS

Head of Trade and

Supply Chain Finance Misys

Expert Advisor to the Trade

Community, ICC Academy

Special Advisor to the World

Trade Board

Alexander R. Malaket, CITP

President

OPUS Advisory Services International Inc.

Member of the Executive Committee,

ICC Banking Commission

Co-Chair, Academic Committee (Trade Finance),

ICC Academy, Singapore

Member of the Board, World Trade Symposium

Ruediger Geis

Head of Product Management

Trade, Commerzbank AG

Member of the Executive Committee,

ICC Banking Commission

By the panel…..


Published by Gower/Ashgate UK

February 2014

www.gowerpublishing.com

(Also available on Amazon)

Published by the International

Chamber of Commerce

http://store.iccwbo.org/

4

http://www.gowerpublishing.com/



5

Digital disruption is the change that occurs when new digital technologies and business

models affect the value proposition of existing goods and services.

Financial services is the most digitised industry in the developed world.

Digitisation in trade and supply chain finance - where we are today


6

Digitisation is more than a channel


Browser Mobile

File services ERP

7

Digitisation is more than automation


Digitisation extends to new ways of acquiring vast amounts of ‘BIG’ data that is said to be

increasing in complexity at a rate of 1000% per decade.

8

Digitisation has the power to transform data flows


The electronic exchange of data and communications can reduce administrative overhead

and permit re-use of data leading to increased accuracy and speed of turnaround.

Digital goods and services Digital platforms Digital wrappers

9

What happens if you don’t digitise in trade…?


Lack of data insight

impacts cost and service

Inconsistent international

service delivery Slow time to market with

solutions that win business

Disjointed digital strategy

to battle disintermediation

Missed opportunity

Increased risk

Inconsistent channels and service

across products and regions

High cost and pain of onboarding Inability to follow clients

into new markets

Loss of competitiveness

Loss of market share

Poor user experience. Lack of data

visibility for bank or client

Slow adoption of e.g. MT798,

eBL, BPO etc…

Loss of visibility Loss of efficiency

Inability to adapt and compete

Accenture estimates

18% of banking

revenues at risk due to

the competition from

alternative financiers

and marketplaces

10

Digitisation enables banks to capture the opportunity


Agility to grow,

service and

connect

Improve

efficiency,

cost, and UX

Win with value

added

services

STP as standard

Meet the demands of

the digitalised

corporate

Reduce errors, cost

and time in manual

processing.

Right data, right

place, right time

Client mobility to

deliver value add

Ease onboarding

for clients and

counterparties

Consistency of

service

Become the central

hub for client and

network connectivity

Significantly boost

transaction volumes

and fee generation

A 360 view of client

and counterparties

Ability to be more

proactive and deliver

timely, relationship

based service

Aggregated data and

common enterprise

processes

Data insight

into relationship

value

11

Optimum design

Complete and connected - integrated from sales to settlement


Bank integration

Trade finance, cash management, loan servicing, treasury and core banking

Collaboration

> Email and SMS

> Company/

counterparty/ Bank

task management

> Documentation

> Audit trail

Relationship

services

> Web marketing

> User specific

dashboards

> Automated

reports

Security

> 2FA/OTP

> Single-sign on

Network

services

> Multi-bank

> SWIFT

> ISO20022

> Payments and

messaging

Integration

> SOA

> JEE

> Misys interfaces

> 3rd party

interfaces

Value added

services

> Calendar

> Alerts

> Content

management

> Templates

Multi-channel

Browser Mobile ERP File services

Common Services Platform

Localisation

> Multi-language

> Multi-entity

branding

> Software

Development Kit

Cross business

workflow

> Data aggregation

> Onboarding

> Authorisations

> Approvals

> Authentication

Business applications

12

Front-to-back Trade and Financial Supply Chain Services

From Client to Operations


13

De-Risking


Loan IQ Loans incl. Participations

Summit Structured & Derivative

Credit Products

Collateral Asset Pool

FusionFabricConnect

Trade Innovation

Trade Finance Products

& Workflows

Results Aggregation &

Presentation

Hedge Strategy

Analysis Hedge Accounting

FusionRisk

e-trading portal

• Collateral Agreements

set / replenish

available asset pools

• Credit instrument

structuring & booking

• Investor & Obligor

Documentation

Credit instrument

structuring & booking

• Asset booking & servicing

• Loan funded & un-funded

participations

• Trade Finance issuance

management

14

Misys FusionBanking Business Intelligence


Digitisation offers the means of achieving increased cost-effectiveness and operational

efficiency whilst reaping the benefits of stronger customer insights and the ability to leverage

new business models.

“Data is the new collateral”

What are the main barriers to the adoption of digital

technologies?

a) Incompatibility of legacy systems

b) Lack of trust in overall security

c) Lack of standardisation

d) Inconsistent use of data definitions and taxonomy

e) Finding the right partners

f) Other

Polling Question #1


16

• Demand for greater efficiency in the use of working capital

• Demand for development and delivery of innovative supply chain solutions

• Increasingly competitive environment; emergence of fintech/regtech

• Pro-cyclical effects of regulation governing capital adequacy

• Growth and influence of emerging economies re-shaping commercial landscape

• Commoditisation of data

Financial institutions require technology platforms that support cost-effective modes of

operation with appropriate levels of standardisation and consistency.

Driving forces, challenges and opportunities – beyond traditional trade


17

Global trade flows


Cross-border movement of goods has reached unprecedented levels, approaching 40% of

global GDP. One-third of goods produced are traded cross-border. In the next decade global

flows are predicted to exceed $50 trillion. The volume of data continues to grow exponentially

as does the variety of data to be processed.

18


As goods flows have increased, their

direction has also changed. Developed

economies used to dominate global

trade—54 % of all goods trade in 1990

was between developed economies—

but in 2012 these flows accounted for

only 28 %. This shift has been offset by

the increasing participation of emerging

economies in global goods trade, both

as exporters and as importers. Emerging

economies now account for 40 percent

of goods flows, and 60 percent of those

go to other emerging economies—so-

called South-South trade.

19

Globalisation of markets

Growth dominated by open account


Conclusion: If industry forecasts for growth prove correct, by 2020 we could have an

additional USD 17 trillion worth of open account trade in respect of which banks will need

to find new ways to compete through innovative financial supply chain management solutions.

4.5 mil 2000

4.6 mil 2010

4.7 mil 2020 (est)

Total Volume of LCs

on SWIFT

$2 Tn 1970

$6 Tn 2000

$15 Tn 2010

$33 Tn 2020 (est)

Value of World Trade Estimated Value of LCs

% world trade on LC

$1 Tn 1970

$1.5 Tn 2000

$2.5 Tn 2010

$3.5 Tn 2020 (est)

50% 1970

25% 2000

18% 2010

11% 2020 (est)

20

Standard definitions of techniques for supply chain finance

Defining Supply Chain Finance Today


Ask five

financiers, you’ll

get at least eight

definitions of

SCF…

Why bother to write

a dictionary…let’s

just do the

business!

Noooooo!!

Not ANOTHER

ICC Drafting

Exercise

&%$!%$

Hmmmm, this could

be handy with

regulators, lawyers,

accountants

and…CLIENTS

21

• Collaborative approach and joint ownership: ICC asked to facilitate only

• Review of existing documentation and definitions, including by BAFT, EBA and others

• In-person sessions in Dubai, Paris, Frankfurt, Toronto, Istanbul, London and Singapore

• Draft and internal peer review process, guidance from Steering Committee


The Process


22


The Outcome


Definition

Synonyms

Distinctive Features

Parties

Contractual relationships and documentation

Security

Risk and risk mitigation techniques

Transaction illustration

Benefits

Asset distribution (as applicable)

Variations (as applicable)

1. Receivables Purchase SCF category

• Receivables Discounting

• Forfaiting

• Factoring and its variations

• Payables Finance

2. Loan or Advance-based SCF category

• Loan or Advance against Receivables

• Distributor Finance

• Loan or Advance against Inventory

• Pre-shipment Finance

3. Enabling framework

• Bank Payment Obligation (BPO)

23


The Outcome


Receivables Discounting

Forfaiting Factoring Payables Finance

Loans against

receivables

Distributor Finance

Inventory Finance

Pre-Shipment Finance

Large Volume

Usually Sometimes Usually Usually Often Often Often Often

Large Value Usually Usually Sometimes Sometimes Often Often Often Often

Low Volume

Often Usually Never Often Usually Often Often Often

Low Value Often Sometimes Usually Sometimes Usually Often Often Often

Large Corporate Obligor

Often Sometimes Often Always N.A. Sometimes Sometimes Sometimes

Large Corporate Creditor

Usually Usually Sometimes Sometimes Sometimes Always N.A. N.A.

SME Obligor

Rarely Sometimes Sometimes Never N.A. Often Often Usually

SME Creditor

Sometimes Sometimes Usually Often Usually Never N.A. N.A.

Buyer-centric

Never Sometimes Never Always Never Never Often N.A.

Seller-centric

Always Usually Always Never Always Always Often Always

100% Financing

Often Usually Sometimes Usually Sometimes Sometimes Sometimes Sometimes

Committed Facility

Often Sometimes Often Sometimes Often Often Sometimes Often

3rd Party Distribution

Often Often Sometimes Sometimes N.A. Sometimes Sometimes Sometimes

Off-Balance Sheet

Usually Always Usually Usually Never Sometimes Sometimes Never

Credit-enhanced / insured

Sometimes Often Often Sometimes Sometimes Sometimes Usually Sometimes

Loan-based Never Sometimes Never Never Always Usually Usually Always

Purchase-based

Always Usually Always Always Never Sometimes Sometimes Never

Disclosed Often Always Usually Always Often Always N.A. N.A.

Non-disclosed

Often Never Sometimes Never Often Never N.A. N.A.

With full recourse

Often Sometimes Usually Never Always Never Usually Usually

With limited recourse

Often Usually Often Usually Never Always Sometimes Never

• Highly engaged team, solid sense of ownership

• Active effort to solicit input throughout

• Wide distribution of draft through partners, seeking

candid commentary

• All comments addressed in review process

• Next priority: advocating adoption globally

24


25


The Outcome


http://www.iccwbo.org/About-ICC/Policy-Commissions/Banking/Task-forces/Global-

Supply-Chain-Finance-Forum-Drafting-Group/

http://www.iccwbo.org/About-ICC/Policy-Commissions/Banking/Task-forces/Global-Supply-Chain-Finance-Forum-Drafting-Group/



















26


27

Current concepts of digital trade and supply chain finance


Wider adoption of eUCP MT798 for traditional

trade finance

BPO for bank-assisted

open account

28

Approved payables in a 4-corner model


Closed 3-corner business model likely to evolve into open 4-corner model

Business

relationship

& liability

Buyer/

Importer

Seller/

Exporter

Service

Provider

Risk &

processing

services

Financing

services

Production

(Market)

Distribution

(Client)

Processing

platform Contract BPO

Exporter’s

bank

Importer’s

bank

Risk, financing

& processing

services

Risk, financing

& processing

services

Routing and Settlement

Routing and

Settlement

Production

(Market)

• Supports partnership banking globally

• Applicable across the risk spectrum

• Open, interoperable rules and standards

• Relationships maintained by local banks

• Supplier on-boarding not an obstacle

• Focused on limited set of buyer-seller relationships

• Demand driven by cash rich importers

• Use of proprietary standards and channels

• Relationships managed by central Service Provider

• Significant supplier on-boarding issues

+

a/c

+

a/c

Buyer/

Importer

Seller/

Exporter

Distribution

(Client)

Contract

Business

relationship

& liability

+

a/c

+

a/c

Processing

platform

Processing

platform

Routing and Settlement

29

“BPO Plus”

eBL held in escrow pending data match


30

• A blockchain is a decentralised, publicly verifiable ledger which holds a record of all

messages exchanged between users. Each message contains two identifiers referring to the

sender and the receiver of the message.

• Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or

performance of a contract, or that make a contractual clause unnecessary. Smart

contracts usually also have a user interface and often emulate the logic of contractual

clauses.

• Tokenisation is the process of substituting a sensitive data element with a non-sensitive

equivalent, referred to as a token, that has no extrinsic or exploitable meaning or value.

The future of digital trade and supply chain finance


31

Major computing paradigms – one per decade


1970s 1980s 1990s 2000s 2010s

?

E-marketplace

Emergence of the e-marketplace

(revolving around a central hub) The distributed model

(aka blockchain)

Today’s business model is

largely based upon

a series of bilateral

relationships.

32

Blockchain in trade & supply chain finance?


• The payment process:

– Direct exchange of payment between buyers and sellers?

Does this threaten to disintermediate the banks?

• Trust in the workflow / mitigating operational risk

– Has the exporter delivered the goods to the port? Can the

importer be sure that goods have been loaded on to the vessel

and are in transit?

What if there was an immutable, digital ledger where the port

authority could register, using an encrypted signature, that goods

have been delivered and loaded and the importer can see this in

real time?

Can blockchain be used to detect potential duplicates of documents,

without the overhead of manually keying in data. Documents would

then be commented against in a traceable and auditable way.

Blockchains are real and growing

Is blockchain a game changer?

a) Yes

b) Yes, but it will take at least 5-10 years

c) No

d) Don’t know

Polling Question #2


34


misys.com Please consider the environment before printing this PowerPoint.

@MisysFS

Misys @ LinkedIn

MisysVideoChannel

www.worldtradesymposium.com

https://twitter.com/MisysFS

http://www.linkedin.com/company/misys

http://www.youtube.com/user/MisysVideoChannel

http://www.worldtradesymposium.com/

digitised trade: connecting markets and supply chain finance

Technology